Learn all about rental income tax in Pakistan for 2024-25. Explore tax slabs, deductions, savings tips, and a calculator to maximize benefits and minimize liability.
Rental Income Taxes in Pakistan
Renting out properties in Pakistan can be a lucrative venture, but understanding the tax implications is crucial for maximizing income while staying compliant. This guide provides a detailed breakdown of tax rates on rental income, allowable deductions, and strategies to optimize tax savings.
What is Rental Income?
Rental income refers to the earnings generated from leasing immovable properties, such as houses, apartments, or commercial spaces. Sources of rental income include:
- Monthly Rent: Regular payments made by tenants.
- Security Deposits: Refundable amounts held as collateral against damages or unpaid rent.
- Key Money: One-time upfront payments (legality varies).
- Premiums: Advance amounts exceeding regular rent payments.
Understanding Rental Income Tax in Pakistan
Rental income in Pakistan is subject to a dual tax system:
1. Withholding Tax (WHT)
Withholding Tax is deducted at the source by tenants and deposited with the Federal Board of Revenue (FBR) before 15th of next month. The applicable rates for individuals in the tax year 2024-25 are:
| Annual Rent (PKR) | Filer’s Tax Rate | Non-Filer’s Tax Rate |
|---|---|---|
| Up to 300,000 | Exempt | Exempt |
| 300,001 – 600,000 | 5% on above 300,000 | 10% on above 300,000 |
| 600,001 – 2,000,000 | 15,000 + 10% | 30,000 + 20% |
| Above 2,000,000 | 155,000 + 25% | 310,000 + 50% |
Deductions, as listed below, are not allowed while calculating withholding taxes on rent. For real time and accuarte withholding tax calculations you can use our Rental Income (Withholding) Tax Calculator.
2. Final Tax
Final Tax is calculated on net rental income after allowable deductions. Property owners are required to pay this tax when filing their annual returns. Rates for 2024-25 are as follows:
| Annual Rental Income (PKR) | Tax Payable |
| Up to 600,000 | Exempt |
| 600,001 – 1,200,000 | 15% |
| 1,200,001 – 1,600,000 | 90,000 + 20% |
| 1,600,001 – 3,200,000 | 170,000 + 30% |
| 3,200,001 – 5,600,000 | 650,000 + 40% |
| Above 5,600,000 | 1,610,000 + 45% |
Explanation: Final taxes on rental income are taxed at the individual tax rates as specified in Income Tax Ordinance. You can calculate your annual tax in real time using our Rental Income Tax (Annual) Calculator.
Maximizing Tax Savings on Rental Income
To minimize your tax liability, you can claim the following deductions:
- Building Repairs and Maintenance: Up to 20% of annual rent
- Insurance Premiums: Premiums paid for property insurance
- Local Taxes and Charges: Property taxes, municipal taxes, etc.
- Ground Rent (Leasehold Properties): Annual ground rent paid to the landowner
- Loan Interest: Interest paid on loans used for acquiring, constructing, or renovating the property
- Management and Collection Expenses: Up to 4% of annual rent
- Legal Expenses: Legal fees incurred for property-related matters
- Irrecoverable Rent (Under Specific Conditions): Unpaid rent under certain circumstances
How to Calculate Rental Income Tax?
Follow these steps to determine your rental income tax liability:
- Calculate Gross Rental Income: Include monthly rent, security deposits, and other payments.
- Compute Withholding Tax: Apply the WHT rate based on your filer status.
- Deduct Allowable Expenses: Subtract eligible deductions to arrive at net rental income.
- Calculate Final Tax: Use the net rental income and applicable tax slabs.
- Adjust for WHT: Subtract withholding tax paid from the final tax liability to find your net payable tax.
Example Calculation
Suppose you earned PKR 1,500,000 in annual rental income as an active filer and your status is individual. While you’re claiming PKR 200,000 in deductions. Your rental tax liablities in Pakistan will be:
- Withholding Tax: PKR 105,000 (based on WHT slab)
- Net Rental Income: PKR 1,300,000
- Final Tax: PKR 110,000 (from tax slabs)
- Net Payable Tax: PKR 5,000 (110,000 – 105,000)
To calculate tax on rent, withholding tax for rental property and rental income deductions you can use our real time and accurate rental tax calculator.
Key Takeaways:
- Two-Tier Tax System: Rental income is subject to both withholding tax and final tax. Withholding tax is deducted by the tenant and remitted to the government.
- Strategic Deductions: Various deductions are allowed under Section 15A of the Income Tax Ordinance. Utilize allowable deductions to minimize your tax liability. Local taxes are not deductible from the final tax liability. Local taxes can be claimed as expenses to reduce rental income. Deductions are applicable only to the final tax liability, not withholding tax.
- Filer Status: Filer status can significantly impact your tax rates. Withholding tax is adjustable against the final tax liability. Filers enjoy lower tax rates compared to non-filers.
Professional Advice: Strategic use of deductions can minimize tax liability and maximize rental income. Consult a tax professional for personalized advice and accurate tax calculations.
FAQs on Rental Income Tax
1. How much rent amount is exempted from income tax in Pakistan?
Rental income up to PKR 600,000 annually or PKR 50,000 is exempt from final tax. However, for withholding tax on rental income PKR 300,000 annually or PKR 25,000 monthly rental income is exempt from wht in Pakistan.
2. How can I calculate my rental income tax?
Use our rental income tax calculator for precise calculations or refer to the slabs provided above. An example is also given there.
3. What happens if my tenant doesn’t deduct WHT?
Property owners must ensure compliance; otherwise, they may face penalties or additional tax liabilities.
By understanding these tax rules and utilizing deductions effectively, you can optimize your rental income and maximize your returns. Consulting a tax professional is recommended for personalized advice and ensuring compliance.
Still confused? You can leave your questions in the comments section below. One of our representatives will answer your querry within 24-hours.
Hello
Good Afternoon!
Its Abid here, want to know about tax on rental equipment e.g. Camera for film industries and accessories.
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Kindly let me your WhatsApp number. I need some guide for filling of income tax return. Regards
A. Shakoor
Its mentioned on the website, 03 178 111 178
I am getting $3300 tax per
Month , how much tax do I have to pay on it
Need more info on that , nature of services provided, residential status, local or foreign income?
For free tax consultation drop message on WhatsApp No. 03 178 111 178
My gross rental income for year 2023/2024 is Rs 8500000, how much tax do I have to pay? I am a tax filer.
Approx 1.2m
15000+ 10% of 250000 that is 25000 so in total 40000
It seems that you have mis-calculated the final taxes. Your calculation are for 850k withholding only. While he is asking for 8500k final taxes.
Excellant informations for rental income slabs
Thank you for the feedback. Keep visiting.
Is there any change for WHT for year 24/25?
No, they’re same for this year as well.
if i am a withholding agent and I have to deduct tax should i deduct 1/5 charges of repair to calculate tax amount
No, you have to deduct WHT at Gross, Deductions are allowed to the owner in Final taxes at the end of the year while filing tax-returns.
any notification for 20 % exemption on repair & maintenance for house rent, please
Section Reference from Income Tax Ordinance mentioned in the article