How is rental income taxed in Pakistan, and is there a tax-free limit on rent?

Rent from property in Pakistan is income tax territory under the Income Tax Ordinance, 2001, not a separate levy. This page covers how the Ordinance, as amended to 30 June 2026, treats rent for tax year 2027 (1 July 2026 to 30 June 2027) for individuals and associations of persons.

What does the law say?

Section 15(1) says rent received or receivable by a person for a tax year, other than exempt rent, “shall be chargeable to tax in that 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 as consideration for its use or occupation, or the right to use or occupy it, “and includes any forfeited deposit paid under a contract for the sale of land or a building”.

Section 15 also moves some receipts out of this head:

• Rent for a building let together with plant and machinery is charged under “Income from Other Sources” (section 15(3)).
• Amounts included in rent for amenities, utilities or other services connected with the building are also charged under “Income from Other Sources” (section 15(3A)).
• Where rent received is less than the fair market rent, the owner is treated as having derived the fair market rent (section 15(4)), unless the fair market rent is included in the tenant’s salary (section 15(5)).

Is there a separate rate or a tax-free limit for rent?

Not for tax year 2027. The footnotes to section 15 record that the Finance Act, 2021 omitted two provisions:

• Sub-section (6), which taxed rent of individuals and associations of persons at the separate rates in Division VIA of Part I of the First Schedule.
• Sub-section (7), which switched off the charge for an individual or association of persons whose rent did not exceed two hundred thousand rupees and who had no taxable income under any other head.

With those gone, section 4 applies: tax is imposed “on every person who has taxable income for the year” at the rates in Division I (for individuals and associations of persons). Rent, after the deductions in section 15A, becomes part of that taxable income.

What are the Division I rates for a landlord?

Clause (1) of Division I sets the rates for individuals and associations of persons other than salaried individuals. It applies to a landlord whose salary, if any, is not more than 75% of taxable income:

Taxable income	Tax for tax year 2027
Up 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

The only “tax-free” amount is this 0% band, and it is shared across all heads of income, not reserved for rent. A landlord who is mainly salaried is covered on the rent and salary page.

Section 4AB adds a surcharge for individuals and associations of persons at “ten percent of the income tax imposed under Division I” where taxable income exceeds rupees ten million. Its proviso, as amended by the Finance Act, 2026, says no surcharge is payable by an individual deriving income under the head “Salary”.

Worked example (illustrative figures)

Tariq lives in Rawalpindi, has no salary or business, and lets a house to a family for Rs. 80,000 a month. The family is not a prescribed person under section 155, so no tax is deducted from the rent.

1. Gross rent for the year: Rs. 80,000 x 12 = Rs. 960,000.
2. Repairs allowance under section 15A(1)(a), one-fifth of rent: Rs. 960,000 / 5 = Rs. 192,000.
3. Income from Property: Rs. 960,000 - Rs. 192,000 = Rs. 768,000. Taxable income is Rs. 768,000.
4. Tax: 15% x (Rs. 768,000 - Rs. 600,000) = 15% x Rs. 168,000 = Rs. 25,200.

On the same assumptions (only the repairs allowance, no other income), yearly rent of Rs. 750,000 leaves Rs. 600,000 of income after the one-fifth allowance, which falls in the 0% band.

What if the tenant deducts tax from the rent?

Where the tenant is a prescribed person, such as a company, a government, a private school or clinic, or an individual paying Rs. 1.5 million or more a year, section 155 requires the tenant to deduct tax “from the gross amount of rent paid at the rate specified in Division V of Part III of the First Schedule”. That deduction is not a separate rent tax. It is collected in advance and credited against the tax worked out on taxable income, as explained on the withholding pages linked below.

Common mistakes

• Relying on the old Rs. 200,000 rent exemption. It was omitted in 2021.
• Applying the old separate rent slab table. Division VIA was omitted in 2021. Rent now joins other income at the Division I rates.
• Declaring rent net of utility and service charges without separating them. Section 15(3A) moves amounts for amenities, utilities and connected services to “Income from Other Sources”; they are still taxable.
• Letting to a relative at a token rent. Section 15(4) can treat the owner as having received the fair market rent.

What to check in the official text

Read sections 15 and 15A, section 4, section 4AB and clause (1) of Division I of Part I of the First Schedule in the source PDF, which holds the rate table. The footnotes to section 15 record the omitted sub-sections (6) and (7). Companies are taxed at the Division II rates, not covered here. Provincial property tax on buildings is a provincial levy outside this corpus.