Tax on Rental Income in Pakistan: Complete Guide for 2025

Renting out property in Pakistan can be a profitable venture, but it comes with tax obligations that landlords must understand to stay compliant with the Federal Board of Revenue (FBR). The tax on rental income in Pakistan is governed by the Income Tax Ordinance, 2001, and involves a dual system of withholding tax and final tax based on net income. For the tax year 2024-25, the rules remain critical for both individual landlords and businesses.

In this comprehensive guide, we’ll break down everything you need to know about tax on rental income in Pakistan, including tax rates, allowable deductions, filing requirements, and strategies to minimize your tax liability. Whether you’re a new landlord or managing multiple properties, this 2025 guide will help you navigate the system with ease.

What is Tax on Rental Income in Pakistan?

Rental income refers to earnings from leasing immovable properties, such as houses, apartments, commercial spaces, or land. In Pakistan, this income is taxed under the head “Income from Property” as per the Income Tax Ordinance, 2001. The tax system for rental income includes:

• Withholding Tax (WHT): Deducted at source by tenants and paid to the FBR.
• Final Tax: Calculated on net rental income (after deductions) when filing annual tax returns.

The tax applies to both residents and non-residents earning rental income from properties in Pakistan. For 2024-25, tax rates and rules depend on the landlord’s status (filer or non-filer) and the amount of income earned.

Why Understanding Rental Income Tax Matters

Failing to comply with rental income tax regulations can lead to:

• Penalties: Up to 100% of the tax payable for non-declaration.
• Increased Withholding Tax: Non-filers face double the WHT rates.
• Legal Issues: The FBR can initiate audits or criminal proceedings for tax evasion.

By understanding and managing your tax obligations, you can avoid these risks, claim allowable deductions, and optimize your rental income.

Tax Rates on Rental Income in Pakistan (2024-25)

The tax on rental income in Pakistan for the tax year 2024-25 is calculated using a progressive slab system for individuals and Associations of Persons (AOPs). Below are the key details:

Withholding Tax (WHT) Rates

Tenants deduct WHT from rent payments and deposit it with the FBR by the 15th of the following month. Rates for individuals/AOPs are:

• Filers:
  • Up to PKR 300,000: 0%
  • PKR 300,001–600,000: 5% of the amount exceeding PKR 300,000
  • PKR 600,001–2,000,000: PKR 15,000 + 10% of the amount exceeding PKR 600,000
  • Above PKR 2,000,000: PKR 155,000 + 25% of the amount exceeding PKR 2,000,000
• Non-Filers: WHT rates are doubled (e.g., 10% instead of 5% for PKR 300,001–600,000).
• Companies:
  • Filers: 15% of gross rent
  • Non-Filers: 30% of gross rent

Final Tax Rates

The final tax is calculated on net rental income (gross rent minus deductions) using the same progressive slabs as above for individuals/AOPs. For companies:

• Turnover above PKR 250 million: 29%
• Turnover below PKR 250 million: 20%

Allowable Deductions for Rental Income

To reduce your taxable income, you can claim the following deductions under Section 15A of the Income Tax Ordinance, 2001:

• Building Repairs and Maintenance: Up to 20% of annual rent for necessary repairs (not improvements).
• Insurance Premiums: Premiums paid to insure the property.
• Local Taxes and Charges: Property taxes, municipal taxes, or other levies.
• Ground Rent: Annual rent paid to the landowner for leasehold properties.
• Loan Interest: Interest on loans used to acquire, construct, or renovate the property.
• Management and Collection Expenses: Up to 4% of annual rent for property management services.
• Legal Expenses: Fees for property-related legal matters (e.g., tenant disputes).

How to Calculate Tax on Rental Income: Step-by-Step

Here’s how to determine your tax liability for rental income in 2024-25:

1. Calculate Gross Rental Income:
   • Include monthly rent, non-refundable security deposits, advance rent, or other payments (e.g., key money, if applicable).
2. Deduct Allowable Expenses:
   • Subtract eligible deductions (e.g., repairs, insurance, loan interest) to get net rental income.
3. Compute Withholding Tax:
   • Apply the WHT rate based on your filer status and gross rent. For example, if gross rent is PKR 1,500,000 for a filer:
     • WHT = PKR 15,000 + 10% of (1,500,000 – 600,000) = PKR 15,000 + 90,000 = PKR 105,000.
4. Calculate Final Tax:
   • Apply the tax slab to net rental income. For example, net income of PKR 1,300,000 (after PKR 200,000 deductions):
     • Final tax = PKR 15,000 + 10% of (1,300,000 – 600,000) = PKR 15,000 + 70,000 = PKR 85,000.
5. Adjust for WHT:
   • Subtract WHT paid from the final tax liability. In the example:
     • Net payable tax = PKR 85,000 – PKR 105,000 = PKR 0 (WHT covers the liability, and any excess may be refunded).

Use our online rental income tax calculator for precise calculations or consult a tax professional.

Filing Rental Income Tax Returns

Landlords must file annual tax returns with the FBR to report rental income. Here’s how:

1. Register with FBR:
   • Obtain a National Tax Number (NTN) if you don’t have one.
   • Ensure you’re on the Active Taxpayers List (ATL) to benefit from lower WHT rates.
2. Gather Documentation:
   • Collect rent agreements, receipts for deductions, and proof of WHT payments.
3. File Online:
   • Log in to the FBR’s Iris portal (iris.fbr.gov.pk).
   • Declare rental income under “Income from Property.”
   • Attach supporting documents and calculate tax liability.
4. Pay Any Balance:
   • If the final tax exceeds WHT paid, pay the difference by the due date (usually September 30 for individuals).

Deadline: For tax year 2024-25, file by September 30, 2025, to avoid penalties.

Tips to Minimize Tax on Rental Income

• Maximize Deductions: Document all eligible expenses to reduce net income.
• Stay a Filer: Register with the FBR and file returns on time to avoid doubled WHT rates.
• Consider Corporate Structure: For large portfolios, a company may benefit from a flat 15% WHT rate.
• Plan Security Deposits: Refundable deposits are not taxed unless forfeited.
• Consult a Tax Expert: A professional can help optimize deductions and ensure compliance.

Frequently Asked Questions (FAQs)

1. Is rental income tax mandatory in Pakistan?

Yes, all rental income from immovable property must be declared and taxed under the Income Tax Ordinance, 2001.

2. What is the tax rate for rental income in 2024-25?

For individuals, rates range from 0% (up to PKR 300,000) to 25% (above PKR 2,000,000). Companies pay 20–29% based on turnover.

3. Can I claim deductions for rental income tax?

Yes, deductions include repairs (up to 20%), insurance, local taxes, loan interest, and management expenses (up to 4%).

4. What happens if I don’t declare rental income?

Non-declaration can lead to penalties up to 100% of the tax payable, audits, or legal action by the FBR.

5. How does withholding tax work for rental income?

Tenants deduct WHT based on gross rent and deposit it with the FBR. This is adjustable against your final tax liability.

Master Your Rental Income Tax in 2025

Understanding tax on rental income in Pakistan is crucial for landlords to maximize profits and stay compliant with FBR regulations. By leveraging deductions, maintaining filer status, and filing returns on time, you can minimize your tax burden and avoid penalties. For the 2024-25 tax year, stay proactive calculate your liability, document expenses, and consider professional advice for complex portfolios.

Ready to manage your rental income tax? Visit the FBR’s Iris portal at iris.fbr.gov.pk to file your returns or explore our blog for more tax tips. Share this guide with fellow landlords to help them navigate the system!

Have questions about rental income tax? Leave a comment below or consult a tax expert today!