How is tax on rent worked out?
There are two separate figures. The first is the tax a prescribed tenant deducts from each rent payment under section 155, at the rates in Division V of Part III of the First Schedule. The second is the tax on the rent in the landlord's own return: section 15 makes rent chargeable under the head Income from Property, section 15A allows deductions, and what is left is taxed with the rest of the landlord's income at the normal rates. The tax the tenant deducted is then set against it.
Who is a prescribed person?
Section 155(3) lists the tenants who must deduct tax from rent:
- the Federal Government, a Provincial Government and a Local Government;
- a company;
- a non-profit organization or a charitable institution;
- a diplomatic mission of a foreign state;
- a private educational institution, a boutique, a beauty parlour, a hospital, a clinic or a maternity home;
- individuals or associations of persons paying gross rent of Rs 1.5 million or more in a year;
- any other person the Board notifies for the purpose.
The deduction is on the gross amount of rent, including rent of furniture and fixtures and amounts for services relating to the property. An explanation added by the Finance Act, 2021 says it applies whatever the head of income.
Section 155 rates for an individual or AOP landlord
| Yearly gross rent | Tax deducted |
|---|---|
| Rs 0 to Rs 300,000 | Nil |
| Rs 300,001 to Rs 600,000 | 5% of the amount above Rs 300,000 |
| Rs 600,001 to Rs 2,000,000 | Rs 15,000 + 10% of the amount above Rs 600,000 |
| Above Rs 2,000,000 | Rs 155,000 + 25% of the amount above Rs 2,000,000 |
A company landlord suffers 15% of the gross rent. Where the landlord is not on the active taxpayers' list, rule 1 of the Tenth Schedule increases the rate by 100%, so the calculator multiplies the deduction by 2. These rates are from the edition amended to 30.06.2026.
What does section 15A allow as deductions?
- a repairs allowance of one-fifth (20%) of the rent, worked out before any other deduction;
- insurance premium paid to insure the building against damage or destruction;
- local rates, taxes, charges or cess paid to a local authority or government, other than income tax;
- ground rent;
- profit paid on money borrowed, including by mortgage, to acquire, construct, renovate, extend or reconstruct the property;
- the share in rent and share towards appreciation paid to the House Building Finance Corporation or a scheduled bank under a rent sharing scheme;
- profit or interest on a mortgage or other capital charge on the property;
- expenditure wholly and exclusively for deriving the rent, including administration and collection charges, up to 4% of the rent;
- legal costs to defend title to the property or a suit connected with it;
- unpaid rent that is irrecoverable, where the conditions in clause (j) are met and the rent was taxed in an earlier year.
Which rates apply to rent in the return?
Rent used to have its own rate table in Division VI, and later Division VIA, of Part I. Both were removed: section 15(6) was omitted by the Finance Act, 2013, and the sub-section (6) inserted in 2016 was omitted by the Finance Act, 2021. For an individual or AOP whose only income is rent, the calculator applies the Division I rates for individuals and AOPs to the rent after deductions. The tax year 2027 table:
| Yearly taxable income | Tax |
|---|---|
| Rs 0 to Rs 600,000 | 0% |
| Rs 600,001 to Rs 1,200,000 | 15% of the amount above Rs 600,000 |
| Rs 1,200,001 to Rs 1,600,000 | Rs 90,000 + 20% of the amount above Rs 1,200,000 |
| Rs 1,600,001 to Rs 3,200,000 | Rs 170,000 + 30% of the amount above Rs 1,600,000 |
| Rs 3,200,001 to Rs 5,600,000 | Rs 650,000 + 40% of the amount above Rs 3,200,000 |
| Above Rs 5,600,000 | Rs 1,610,000 + 45% of the amount above Rs 5,600,000 |
Where the rates come from
Every rate is read from the Income Tax Ordinance, 2001 as consolidated by FBR. The rates on this page were last checked against the official text on 2026-09-26.
- Income Tax Ordinance, 2001, section 155, deduction from rent and the list of prescribed persons (as amended to 2026-06-30) official file
- Income Tax Ordinance, 2001, First Schedule, Part III, Division V, rates for section 155 (as amended to 2026-06-30) official file
- Income Tax Ordinance, 2001, section 15, rent chargeable under Income from Property (as amended to 2026-06-30) official file
- Income Tax Ordinance, 2001, section 15A, deductions from rent (as amended to 2026-06-30) official file
- Income Tax Ordinance, 2001, First Schedule, Part I, Division I, clause (1), rates for individuals and AOPs (as amended to 2026-06-30) official file
- Income Tax Ordinance, 2001, Tenth Schedule, rule 1, persons not on the active taxpayers' list (as amended to 2026-06-30) official file
Common questions
Who has to deduct tax from rent under section 155?
A prescribed person paying rent: the Federal Government, a Provincial Government, a Local Government, a company, a non-profit organization or charitable institution, a diplomatic mission of a foreign state, a private educational institution, boutique, beauty parlour, hospital, clinic or maternity home, individuals or associations of persons paying gross rent of Rs 1.5 million or more in a year, and any other person the Board notifies.
How much tax does a tenant deduct from rent paid to an individual?
Under Division V of Part III of the First Schedule, nothing on yearly gross rent up to Rs 300,000, then 5% of the amount above Rs 300,000, rising to Rs 155,000 plus 25% of the amount above Rs 2,000,000. The same table applies to an association of persons. A company landlord suffers 15% of the gross rent.
Is the tax deducted from rent a final tax?
No. Section 155(2), which made the deduction a final tax on income from property, was omitted by the Finance Act, 2010. Rent is chargeable under the head Income from Property in section 15 and is included in the landlord's return, where the tax deducted is claimed against the tax on the return.
What deductions are allowed against rental income?
Section 15A allows a repairs allowance of one-fifth of the rent, insurance premium on the building, local taxes on the property, ground rent, profit on money borrowed to acquire, build or renovate the property, rent sharing with HBFC or a bank, mortgage interest, administration and collection costs up to 4% of the rent, legal costs to defend title, and irrecoverable rent that was earlier taxed.
Is there a separate tax rate for rent?
No longer. Section 15(6), which taxed rent at the rate in Division VI of Part I, was omitted by the Finance Act, 2013. A later sub-section (6), inserted by the Finance Act, 2016 to tax individuals and associations of persons under Division VIA, was omitted by the Finance Act, 2021. Rent is now part of total income and taxed at the normal rates.