Rental Income Tax in Pakistan 2026-27 — Section 155 Guide

Renting out a house, apartment, shop or commercial building is one of the most common sources of income in Pakistan — and one of the most commonly misunderstood for tax. Many landlords receive rent for years without realising that the tenant may be required to deduct tax under Section 155, that the tax is charged on slabs for individuals, and that whatever is deducted can be claimed as a credit in the annual return. This guide explains how rental income tax works in Pakistan for 2026-27, who deducts it, and how to calculate what you actually owe.

Try the calculator: Estimate your own liability in seconds with our Rental Income Tax Calculator — enter your annual rent, landlord type and filer status.

What Counts as Rental Income?

Rental income is any amount you receive for letting out a property — land, a house, a flat, a shop, an office or a commercial building. It also includes advance rent and, in many cases, the refundable security deposit is not income (it is returned), while a non-refundable deposit is treated as income. If you receive rent partly in cash and partly through services or adjustments, the full value still counts. The key point is that income from property is a separate head of income in your tax return, distinct from salary or business income.

Section 155 — Tax Deducted by the Tenant

Under Section 155 of the Income Tax Ordinance 2001, prescribed tenants — including companies, firms and other specified persons — must deduct tax from rent payments at the time of payment and deposit it with the government. Individual tenants renting for personal use are generally not required to deduct, which is why one landlord may see tax deducted while another does not. The deducted amount is not an extra cost: it is an advance tax in the landlord's name, and the landlord claims it as a credit when filing the annual return. Always collect the deduction certificate (or the PSID/challan copy) from your tenant — without proof, claiming the credit becomes difficult.

How Rental Income Tax Is Calculated for Individuals

Individuals and AOPs are taxed on their gross rental income under progressive slabs prescribed in the First Schedule: higher rent falls into higher slabs, and each rate applies only to the income inside that slab. Landlords who are not on the Active Taxpayer List pay roughly double the rate of filers at the same income level, which is one of the strongest financial reasons to file your return. Because slab thresholds and rates are revised through Finance Acts, always confirm the current year's figures — the Rental Income Tax Calculator applies the current slabs for you automatically, including the non-filer difference.

Company Landlords — Flat Rates

Where the landlord is a company, the calculation is simpler: a flat rate applies to the gross rent instead of slabs. Our calculator currently applies the flat company treatment at 15%/30% depending on the company's tax status. For example, a company receiving Rs. 6,000,000 annual rent at the 15% rate would have Rs. 900,000 of tax for the year, before any adjustments in its return. Companies should still reconcile the Section 155 deductions made by their tenants against the final liability in the annual assessment.

Is Rental Tax Final or Adjustable?

For individuals, tax deducted under Section 155 is generally adjustable — it is advance tax credited against your total annual liability, not a final settlement by itself. In your return you declare the gross rent, claim the tax already deducted as a credit, and pay only the difference (or claim a refund if more was deducted than your final liability). This is different from regimes like Section 154A for IT exporters, where the deduction can be final. Keeping rent agreements, bank records of rent received and deduction certificates is essential for this reconciliation.

Expenses — What Can a Landlord Deduct?

Pakistan taxes individuals largely on gross rent under the slab system, so the scope for deducting expenses is limited compared with business income. Repairs, property tax and other costs are not simply subtracted the way business expenses are. This surprises many landlords who assume net rent is taxed. If your property activity is genuinely run as a business (for example, a commercial letting business with multiple properties and staff), the treatment can differ — that is a case for professional advice, and our business income tax guide explains how business taxation works.

Common Landlord Mistakes

The most common mistakes are: assuming rent is tax-free because no tenant deducted anything; throwing away Section 155 deduction certificates; declaring net rent instead of gross rent; ignoring the non-filer rate difference; and forgetting that rent received in a spouse's or family member's account is still the owner's income. Each of these surfaces when the FBR matches property records, tenant filings and bank data — filing correctly from the start is far cheaper than explaining later.

Key Takeaways

Rental income is a separate head of income, taxed on gross rent for individuals.
Prescribed tenants deduct tax under Section 155; that deduction is a credit in your return, not an extra cost.
Non-filers pay roughly double the filer rate on the same rent.
Companies are taxed at flat rates rather than slabs.
Keep the rent agreement, bank trail and deduction certificates for every year.

Frequently Asked Questions

My tenant does not deduct any tax. Is my rent tax-free?

No. Whether tax is deducted at source does not decide whether the income is taxable. You must declare the rent in your annual return and pay the tax yourself if no deduction was made.

Can I claim the tax my tenant deducted?

Yes. Section 155 deductions are made in your name and CNIC. Claim them as tax credits in your return and keep the certificates or challans as evidence.

Do I pay tax on the security deposit?

A genuinely refundable deposit is not income. A non-refundable amount, or a deposit adjusted against rent, is treated as rental income.

What if I own the property jointly with my spouse?

Each owner declares their share of the rent according to their ownership share, and slabs apply per person. Joint ownership can legitimately reduce the combined tax because each owner uses their own slab range.

Renting to a Company vs an Individual Tenant

Who your tenant is changes the paperwork. A company, firm, bank, government department or other prescribed person renting your property must deduct tax under Section 155 and provide you with the deduction evidence. An individual renting a house for their family generally does not deduct — the tax responsibility stays entirely with you at return time. Commercial landlords letting shops and offices to businesses will therefore see regular deductions, while residential landlords often receive full rent and must remember that "no deduction" does not mean "no tax". If a business tenant offers to pay in cash without deduction, refuse: the deduction trail protects both sides.

How to Declare Rental Income in Your Return

In your annual return on IRIS, declare the gross annual rent under the property income section, then enter the Section 155 tax already deducted by tenants as an adjustable credit with the supporting certificates. If the deducted amount is less than your slab-based liability, you pay the difference through a PSID before submitting; if it is more, the excess is refundable or carried into your assessment. Keep the rent agreement, monthly receipts or bank credits and the deduction certificates together for the year — these three documents answer almost every question the FBR can ask about rental income. Joint owners should each declare only their own share and claim only their share of the deduction.

Related Guides

Sources & review: The rates and rules in this guide are based on the Federal Board of Revenue (FBR), the Income Tax Ordinance 2001 and the amendments introduced through the Finance Act for 2026-27. File and verify your own return on FBR IRIS. This guide is for information only and is not professional tax advice. Last reviewed: October 2026.