If I let my house to a relative at a low rent, does FBR tax me on a higher rent?

Letting a house to a brother, a cousin or an elderly parent at a token rent is common in Pakistan. The Income Tax Ordinance, 2001 does not tax the landlord on the token figure alone. It has a specific rule that replaces low rent with fair market rent. This page uses the Ordinance as amended to 30 June 2026, which applies to tax year 2027.

What does the law say?

Section 15(4) says that, subject to sub-section (5), where the rent received or receivable is less than the fair market rent for the property, the person “shall be treated as having derived the fair market rent for the period the property is let on rent in the tax year”.

Section 15(5) is the only exception in the section: sub-section (4) does not apply where the fair market rent is included in the tenant’s income chargeable under the head “Salary”. This fits the case of an employer that owns a house and lets it to an employee, where the value is taxed as the employee’s salary.

What counts as fair market rent?

Section 68(1) defines the fair market value of property “or rent” as the price it would ordinarily fetch on sale or supply in the open market at that time. Section 68(2) adds that it is determined without regard to any restriction on transfer or to the fact that it is not otherwise convertible to cash.

Section 68(4) and (5) let the Board notify, or fall back on stamp duty values for, the fair market value of immovable property. Those sub-sections speak of the value of the property itself, and do not set out a notified rent. In practice, fair market rent under section 68(1) points to what similar properties in the same area let for in the open market.

How does it work in practice?

The rule is applied per property and per period of letting:

• The deemed amount is the fair market rent for the period the property is let on rent in the tax year, not for the whole year if the letting started midway.
• The landlord’s actual rent receipts are replaced by the fair market rent where the actual figure is lower. Where actual rent equals or exceeds market rent, section 15(4) does nothing.
• Section 15(4) contains no relief for family relationships, hardship or verbal arrangements.

Worked example (illustrative figures)

Farooq owns a house in Johar Town, Lahore and lets it to his younger brother for all of tax year 2027 at Rs. 30,000 a month. Comparable houses on the same street let for about Rs. 80,000 a month. All amounts are invented.

Step	Item	Amount (Rs.)
1	Actual rent received (30,000 x 12)	360,000
2	Fair market rent for the period let (80,000 x 12)	960,000
3	Is actual rent less than fair market rent?	Yes
4	Rent Farooq is treated as having derived under section 15(4)	960,000
5	Difference taxed although never received (960,000 - 360,000)	600,000

If the brother had moved in on 1 January 2027, the period let in tax year 2027 would be six months, and the deemed rent would be Rs. 80,000 x 6 = Rs. 480,000. Deductions are then taken from the deemed rent as described on the deductions page.

What if the house is furnished or comes with services?

Two separate rules in section 15 change which head applies, not whether fair market rent is used:

• Section 15(3): rent from a building let together with plant and machinery is not property income. It is chargeable under “Income from Other Sources”, matching section 39(1)(f).
• Section 15(3A): any amount included in rent for amenities, utilities or other services connected with renting the building is chargeable under “Income from Other Sources”, matching section 39(1)(fa).

So where a relative pays one combined figure for a furnished house with a generator and a guard, the service element is split out under section 15(3A). Section 15(4) speaks of the rent for “the property”; the Ordinance does not spell out how a fair market comparison is made for a mixed letting.

Common mistakes

• Assuming family lets are outside the rule. Section 15(4) has no family exception.
• Using the FBR valuation table as rent. Section 68(4) and (5) values relate to immovable property, not to monthly rent.
• Applying the deemed rent to months the house was empty. Section 15(4) is limited to the period the property is let on rent.
• Relying on section 15(5) for a relative who is not an employee. The exception applies only when the fair market rent is taxed as the tenant’s salary.

What to check in the official text

Read section 15(3) to (5) together with section 68(1) and (2), and section 39(1)(f) and (fa). Whether rent-free use by a family member is a letting on rent is not stated in these sections, and the Ordinance gives no numeric method for fixing fair market rent.