Rental Income Tax Pakistan 2026
How Much Tax on Rent? FBR Rules & Deductions Explained

Is Rental Income Taxable in Pakistan?

Yes. Under the Income Tax Ordinance 2001, rental income from property is a separate head of income called "Income from Property." Whether you rent a house, apartment, shop, office, or warehouse, you must declare the income and pay tax accordingly.

Many property owners assume that because their tenant deducts tax at source (WHT), they don't need to file a return. This is incorrect — the WHT deducted by tenants is an advance tax, and you must still file your annual FBR return declaring gross rent received.

Rental Income Tax Rates Pakistan 2026

Allowed Deductions from Rental Income

FBR allows the following deductions before calculating your taxable rental income:

• 20% Standard Deduction: A flat 20% of gross rent is deducted automatically for repairs and maintenance — no receipts required
• Property Tax: Any local government property tax paid during the year is deductible
• Insurance Premium: Insurance paid on the rented property is deductible
• Ground Rent: Any ground rent or lease payments made are deductible
• Markup/Interest: If the property was purchased with a mortgage loan, markup paid can be deducted

Section 155 — Withholding Tax on Rent

If your tenant is a company, firm, or AOP (AOP tax return), they are legally required to deduct withholding tax on rent under Section 155 of the Income Tax Ordinance. Current rates:

How to Declare Rental Income in FBR Return

• Login to FBR IRIS portal (iris.fbr.gov.pk)
• Open your income tax return filing for the relevant tax year
• Go to "Income from Property" section
• Enter gross rent received from each property
• System automatically calculates the 20% deduction
• Enter property tax paid and any mortgage markup
• Enter WHT already deducted by tenants (as advance tax)
• Calculate net tax payable after adjusting advance tax

Rental Income from Multiple Properties — How It Is Taxed

If you own more than one rented property, FBR does not tax each property independently. Instead, all rental income from all properties is combined into a single "Income from Property" figure for the tax year. The applicable tax slab is then determined based on this total combined rental income.

Each property's allowable deductions are calculated separately. For each property you declare, the 20% standard deduction for repairs and maintenance is applied to that property's gross rent. Similarly, property tax paid and mortgage markup (if any) is deducted property-by-property before arriving at the net income from each property.

Importantly, if one property generates a loss in the year — for example because property tax paid and mortgage markup exceed the rental received — that loss can be offset against income from your other rental properties. This is because all income under Section 15 (Income from Property) is treated as a single head, allowing intra-head loss adjustment.

Practical example: Suppose you have two properties. Property A generates net rental income of Rs. 8,00,000 after the 20% deduction. Property B has net rental income of Rs. 2,00,000 after deductions. Your total Income from Property is Rs. 10,00,000, which falls in the 10% tax bracket. You declare both properties in the IRIS return under "Income from Property" and enter each separately — IRIS combines them automatically.

Advance Tax on Rental Income — Section 147

Many landlords are unaware that beyond the annual return, they may also have an obligation to pay quarterly advance tax during the tax year under Section 147 of the Income Tax Ordinance 2001.

If your estimated tax liability for TY2026 exceeds Rs. 1,000,000 (Rs. 1 million), you are required to pay advance tax in four equal quarterly installments — due in September, December, March, and June of the tax year. Failure to pay advance tax by the due dates attracts a default surcharge (currently calculated at KIBOR + 3% per annum on the shortfall amount).

To estimate your quarterly advance payment: take your projected annual rental income, apply the deductions and the applicable tax slab rate, arrive at your estimated annual tax liability, and divide by four. Pay each quarter via the IRIS e-payment portal (e-payment > Income Tax > Advance Tax) and generate a PSID for payment at your bank or through online banking.

Landlords who have consistently paid advance tax on time are less likely to attract FBR scrutiny compared to those who accumulate the full year's liability and pay only at return filing time.

Rental Income Tax for Non-Resident Pakistanis

Overseas Pakistanis who own property in Pakistan and receive rent from that property have the same tax obligations as resident landlords — the rental income is taxable in Pakistan regardless of where the property owner currently lives or works.

Under Pakistani tax law, income that arises in Pakistan is taxable in Pakistan even if the recipient is non-resident. Rental income from a property located in Pakistan is therefore always subject to Pakistani income tax, and the landlord must file an FBR return to declare it.

If your tenant is a company or AOP, they will deduct withholding tax under Section 155 at the applicable rate — 15% for filers or 30% for non-filers. As a non-resident, you should ensure you are registered as a filer and maintain NTN status to avoid the higher 30% deduction. Your NTN is required even as a non-resident — you can obtain or verify it on the IRIS portal using your NICOP number.

Non-residents must declare Pakistani rental income in their annual income tax return filed with FBR. The return is filed for the same tax year (July to June) as residents, and the same deductions apply. Kamboh Associates regularly assists overseas Pakistanis with FBR returns for rental income — contact us on WhatsApp from anywhere in the world.

Wealth Statement — How to Declare Rental Property

Your annual FBR income tax return includes a wealth statement where you must declare all assets owned as of 30 June of the tax year. Rental property must be included in this wealth statement every year, not just the year you purchased it.

The key rule for property valuation in the wealth statement is that you declare it at the FBR valuation table rate (or DC rate, whichever is higher) — not at market value. This is significant because market value in many cities is considerably higher than FBR or DC rates, and the wealth statement uses the government valuation, which is lower. If you purchased the property at a price higher than the FBR/DC rate, you declare the actual cost of purchase.

Your rental income is declared separately in the income section of the return (under Income from Property). The wealth statement and income section must be reconciled: rent you received should appear as income, and the same amount should show up as cash/bank deposits or an explanation of how it was spent in the wealth reconciliation.

A common mistake is declaring the property in the wealth statement but underreporting rental income in the income section. FBR's risk profiling systems compare declared rent against property values and market norms for the area — a significant discrepancy can result in an audit or notice under Section 122.

Frequently Asked Questions