Tax on rent and section 155 withholding

This guide explains how rent is taxed in Pakistan, and the tax some tenants must deduct from the rent they pay. It describes the rules; it does not work out anyone’s final tax, which depends on all of a person’s income and circumstances.

The tax year

A tax year runs from 1 July to 30 June and is named after the year in which it ends. Tax year 2027 runs from 1 July 2026 to 30 June 2027.

How rent is taxed

Rent received or receivable for the year is income under the head “income from property” (section 15 of the Income Tax Ordinance 2001).

Since tax year 2022, an individual’s or AOP’s income from property has no longer been taxed at separate rates. It is worked out net, after the deductions in section 15A, and taxed together with the person’s other income at the normal rates.

Deductions under section 15A

• Repairs: an allowance of one-fifth of the rent of the building for the year, worked out before any other deduction under the section.
• The premium paid to insure the building.
• Interest or profit on a mortgage or other capital charge on the property.
• Expenses of earning the rent, including administration and collection charges up to a cap. PwC’s tax summary (a secondary source) gives the cap as 4% of the rent; an older reproduction of the law (also secondary) says 6%. Check the current text with your adviser.

Other items are mentioned in secondary guides, but we could not confirm them from an official text.

Section 7E has gone

In a short order of 7 May 2026, the Federal Constitutional Court declared section 7E (tax on deemed income from immovable property) unconstitutional and void, holding it ultra vires the Constitution (Dawn’s report of the order, a press report; the court gave its detailed reasons in June 2026, also reported by Dawn). We have not read the judgment itself. The Finance Act 2026 removed it, as the FBR’s Circular No. 2 of 2026-27 explains.

Withholding under section 155

Some tenants must deduct income tax from the rent when they pay it and deposit it with the FBR. This is withholding: an advance against the landlord’s tax, not an extra tax.

Which tenants deduct

Only a “prescribed person”. The FBR’s guidance lists:

• the federal, provincial and local governments;
• companies;
• non-profit organisations and charitable institutions;
• the diplomatic missions of foreign states;
• private educational institutions, boutiques, beauty parlours, hospitals, clinics and maternity homes;
• individuals and associations of persons paying gross rent of Rs 1.5 million or more a year.

So a family renting a home for less than Rs 1.5 million a year does not deduct. A person running a private school, hospital, clinic, maternity home, boutique or beauty parlour is on the list whatever the rent, even when that person is an individual. The deduction is made from the gross rent, including any advance, and including amounts for furniture, fixtures and services relating to the property. We have not seen the 2026 consolidated text of the Ordinance, only this guidance; no later change to the list came up in our search.

The rates for tax year 2027

These are the rates on the FBR’s rate card for tax year 2027, on the gross rent for the year, for a landlord who is an individual or an AOP:

For a landlord that is a company: 15% of the gross rent if it is on the ATL, 30% if it is not (tax year 2026 card). The excerpt of the tax year 2027 card we could read did not show the company row, and neither the Finance Act 2026 nor the FBR’s circular on it mentions a change that we could find.

For example, a company tenant paying Rs 100,000 a month to a landlord on the ATL pays Rs 1,200,000 a year, and deducts Rs 15,000 plus 10% of Rs 600,000: Rs 75,000 over the year. The section 155 calculator works this out for any rent, step by step.

What is uncertain

• Landlords not on the ATL. The current FBR cards double the individual and AOP rates for a landlord not on the ATL, citing rule 1 of the Tenth Schedule, and PwC (secondary) agrees. But the FBR’s 2020 and 2021 cards said the Tenth Schedule did not apply to section 155, and we did not find the law that changed that. Check this column with a tax adviser.
• Monthly payments. The rates are set on the year’s gross rent, and tax is deducted when rent is paid. We found no official rule on how a tenant spreads the year’s tax over monthly payments, or handles a part year or a change of rent during the year.

What the deduction means for the landlord

Tax deducted under section 155 is adjustable: it counts towards the landlord’s final tax for the year. It is not the final tax. Keep the tenant’s certificate or the payment receipt (CPR) for each deduction, because your adviser will need them.

Check the Active Taxpayers List

Send a text message to 9966 with the word ATL, a space and the 13-digit CNIC number (for a company or AOP, its 7-digit NTN), or search the ATL on the FBR website.

How Maalik-e-Makaan will help

The app does not estimate your final tax. When version 1.0 is released, it will:

• record the tax a tenant withholds on each payment, with the certificate or CPR number, so that the cash plus the tax withheld settles the rent due;
• work out the one-fifth repairs allowance;
• give you a July–June statement for each property, with the gross rent, the tax withheld, the repairs allowance and other expenses, for your tax adviser. The statement is not tax advice.