Which expenses can I deduct from rent, such as repairs, property tax or loan interest?

Rent is not taxed on the full amount a tenant pays. Section 15A of the Income Tax Ordinance, 2001 sets out a closed list of deductions a landlord may take before arriving at income chargeable under the head “Income from Property”. This page uses the Ordinance as amended to 30 June 2026, which governs tax year 2027 (1 July 2026 to 30 June 2027).

What does the law say?

Section 15(1) taxes the rent received or receivable in a tax year under the head “Income from Property”. Section 15(2) defines rent as any amount received or receivable by the owner of land or a building for its use or occupation, or the right to use or occupy it.

Section 15A(1) then allows the following deductions in computing that income:

Clause	Deduction	Limit or condition
(a)	Repairs allowance	One-fifth of the rent chargeable for the building, computed before any other section 15A deduction
(b)	Insurance premium	Paid or payable in the year to insure the building against damage or destruction
(c)	Local rate, tax, charge or cess	Paid or payable to a local authority or government on the property or its rent, but not income tax under the Ordinance
(d)	Ground rent	Paid or payable in the year for the property
(e)	Profit on borrowed money	Loan, including a mortgage, used to acquire, construct, renovate, extend or reconstruct the property
(f)	Rent-sharing finance	Share in rent and share in appreciation paid to the House Building Finance Corporation or a scheduled bank, excluding return of capital
(g)	Mortgage or capital charge	Profit or interest paid on the mortgage or charge
(h)	Administration and collection costs	Spent wholly and exclusively to derive the rent, capped at 4% of the rent computed before any section 15A deduction
(i)	Legal costs	Legal services to defend title to the property or a suit connected with it
(j)	Irrecoverable rent	Unpaid rent, only if all three conditions below are met

When can unpaid rent be deducted?

Clause (j) allows an allowance equal to unpaid rent where there are reasonable grounds to believe it is irrecoverable, and all of these hold:

1. The tenancy was bona fide, the tenant has left or steps have been taken to make the tenant leave, and the tenant does not occupy another property of the landlord.
2. The landlord has taken all reasonable steps to start legal proceedings for recovery, or has reasonable grounds to believe proceedings would be useless.
3. The unpaid rent was already included in the landlord’s Income from Property for the year it was due, and tax on it was duly paid.

If that rent is later recovered in whole or part, section 15A(2) taxes the recovered amount in the year it comes in.

How does it work in practice?

The deductions are claimed against the rent of each property in the landlord’s return. Two points shape the arithmetic. First, clauses (a) and (h) are both measured on the rent “computed before any deduction allowed under this section”, so they are calculated on gross rent, not on what is left after other deductions. Second, most items are “paid or payable”, so an expense that has fallen due in the year counts even if the cash goes out later.

Section 15A(5) says an expense deducted here cannot be deducted again under any other head of income. Section 15A(6) applies the business-head rules on disallowed deductions to these property deductions in the same way.

Worked example (illustrative figures)

Sana owns a flat in Gulshan-e-Iqbal, Karachi, let for the whole of tax year 2027 at Rs. 100,000 a month. All amounts below are invented; the limits are from section 15A.

Step	Item	Amount (Rs.)
1	Rent chargeable (100,000 x 12)	1,200,000
2	Repairs allowance, one-fifth of 1,200,000	240,000
3	Property tax paid on the flat (clause (c))	18,000
4	Building insurance premium	12,000
5	Profit paid on the bank loan used to buy the flat	150,000
6	Agent’s collection fee actually paid: 60,000. Cap is 4% of 1,200,000 = 48,000	48,000
7	Total deductions (240,000 + 18,000 + 12,000 + 150,000 + 48,000)	468,000
8	Income from Property (1,200,000 - 468,000)	732,000

The Rs. 12,000 of agent’s fee above the 4% cap is not deductible under clause (h). The tax rate that then applies to Rs. 732,000 depends on the landlord’s status and other income, and is covered on the page about how rental income is taxed.

What if a deducted expense is never paid?

Because clauses allow amounts “paid or payable”, section 15A(3) adds a safeguard. If a landlord was allowed a deduction and has not paid the liability, or part of it, within three years of the end of the tax year in which the deduction was allowed, the unpaid amount becomes chargeable as Income from Property in the first tax year after those three years. If the landlord pays it after that, section 15A(4) allows a deduction in the year of payment.

What if the rent includes furniture, services or machinery?

Section 15(3) sends rent from a building let together with plant and machinery to “Income from Other Sources”, and section 15(3A) does the same for any part of the rent charged for amenities, utilities or other services connected with renting the building. Section 15A deductions are for income under the property head, so those amounts sit outside this list.

Common mistakes

• Treating the 4% cap as applying to everything. The 4% ceiling in clause (h) covers only administration and collection costs. Insurance, local taxes and loan profit have no percentage cap in section 15A.
• Claiming depreciation on the building. Section 15A has no depreciation deduction for a building taxed under the property head. The list in section 15A(1) is the full set of allowances.
• Deducting the loan principal. Clause (e) allows the profit on the loan. Clause (f) expressly excludes the return of capital.
• Writing off rent that was never declared. Clause (j)(iii) requires that the unpaid rent was included in income and taxed for the year it was due.

What to check in the official text

Read section 15A in full, especially clause (h), whose rate was reduced from six to four per cent by the Finance Act, 2020, and the conditions in clause (j). Section 15 defines rent and separates out plant, machinery and amenity charges. Provincial property tax rates themselves are set by provincial law, which is outside this corpus; the Ordinance only allows the amount paid as a deduction.