If you own a rental property in Pakistan, the most common question you will ask yourself every year is the same one. How much tax do I actually owe on what my property earned?
The direct answer: Pakistan taxes rental income on a progressive slab basis under the FBR’s Income Tax Ordinance. Income up to PKR 300,000 annually is exempt. Above that, rates rise from 5% to 25% depending on your total rental income. You can deduct a standard 20% repair allowance plus certain real expenses before calculating what you owe. This guide walks through exact worked examples so you can calculate your own liability with confidence.
The 2025-26 Rental Income Tax Slabs
Before calculating anything you need the current slab structure. These are the rates that apply to your net rental income — not your gross rent.
| Annual Rental Income | Tax Rate |
| Up to PKR 300,000 | Exempt — PKR 0 |
| PKR 300,001 – 600,000 | 5% of amount exceeding PKR 300,000 |
| PKR 600,001 – 2,000,000 | PKR 15,000 + 10% of amount exceeding PKR 600,000 |
| PKR 2,000,001 – 4,000,000 | PKR 155,000 + 15% of amount exceeding PKR 2,000,000 |
| PKR 4,000,001 – 6,000,000 | PKR 455,000 + 20% of amount exceeding PKR 4,000,000 |
| Above PKR 6,000,000 | PKR 855,000 + 25% of amount exceeding PKR 6,000,000 |
The critical point most landlords miss: these rates apply after deductions — not to your raw monthly rent multiplied by 12.
Step 1: Calculate Your Net Taxable Rental Income
Before applying any slab, you reduce your gross annual rent by a standard deduction.
The 20% standard repair allowance is automatic. You do not need receipts. You simply deduct one-fifth of your gross rental income as a flat repair and maintenance allowance, regardless of what you actually spent.
Beyond that automatic deduction, you can also subtract:
- Property insurance premiums paid during the year
- Local property tax or ground rent paid to authorities
- Loan markup or interest paid on financing used to buy or improve the rental property
What you cannot deduct: personal expenses, capital improvements that increase the property’s value (as opposed to maintaining it), or any cost unrelated to generating the rental income.
Worked Example 1: A Modest Rental Property
You own a 5 Marla house in Bahria Town Phase 8 renting at PKR 60,000/month.
- Gross annual rent: PKR 60,000 × 12 = PKR 720,000
- Less 20% standard allowance: PKR 144,000
- Net taxable income: PKR 576,000
This falls in the PKR 300,001–600,000 slab. Tax = 5% of (PKR 576,000 − PKR 300,000) = 5% × PKR 276,000 = PKR 13,800 owed for the year
Worked Example 2: A Premium Bahria Town House
You own a 10 Marla house in Bahria Town Phase 4 renting at PKR 160,000/month.
- Gross annual rent: PKR 160,000 × 12 = PKR 1,920,000
- Less 20% standard allowance: PKR 384,000
- Net taxable income: PKR 1,536,000
This falls in the PKR 600,001–2,000,000 slab. Tax = PKR 15,000 + 10% of (PKR 1,536,000 − PKR 600,000) = PKR 15,000 + PKR 93,600 = PKR 108,600 owed for the year
Worked Example 3: A Managed Short-Term Rental (Airbnb)
You own a 2-bedroom furnished apartment in Bahria Town Phase 7, professionally managed as a short-term rental, generating average net Airbnb revenue of PKR 220,000/month before tax.
- Gross annual rental income: PKR 220,000 × 12 = PKR 2,640,000
- Less 20% standard allowance: PKR 528,000
- Net taxable income: PKR 2,112,000
This falls in the PKR 2,000,001–4,000,000 slab. Tax = PKR 155,000 + 15% of (PKR 2,112,000 − PKR 2,000,000) = PKR 155,000 + PKR 16,800 = PKR 171,800 owed for the year
Important: Airbnb and short-term rental income is taxed exactly the same way as long-term rental income under FBR rules. There is no separate “Airbnb tax category” — it is all rental income.
Withholding Tax: A Separate Consideration
If your tenant is a company or registered firm rather than an individual, the law requires them to deduct 15% withholding tax from your rent before paying you, and deposit it with the FBR on your behalf.
This withholding is not an additional tax — it is an advance payment credited against your final annual liability. If the amount withheld exceeds what you actually owe based on the slabs above, you can claim the difference back as a refund when you file.
If your tenant is an individual, no withholding applies, and you are fully responsible for declaring and paying tax yourself at filing time.
Common Tax-Related Questions Landlords Ask
Do I pay tax if my tenant pays my utility bills as part of rent?
Yes — any benefit that forms part of the rental arrangement, including utility payments made on your behalf, generally counts as part of your rental income for tax purposes.
Does it matter if I am an overseas Pakistani?
No. If the property is located in Pakistan and generates rental income, that income is taxable in Pakistan regardless of where you personally reside. Overseas status does not create an exemption.
What if I have multiple rental properties?
You combine the net rental income from all properties into a single total before applying the slab rates — the slabs are not applied separately to each property.
Can I deduct property management fees?
Yes — professional property management fees, including a service like T2R’s, are a legitimate expense directly connected to generating your rental income and should be included in your deductions.
When You Need to File
Pakistan’s tax year runs July 1 to June 30. Your annual return covering rental income for the year is due by September 30 of the following year. For income earned July 2025–June 2026, the filing deadline is September 30, 2026.
Filing late triggers a default surcharge. Filing early gives you time to fix any documentation issues and claim any refund owed from over-withheld tax.
Why Accurate Monthly Records Make This Calculation Effortless
Every worked example above depends entirely on knowing your exact gross annual rental income and your deductible expenses. Landlords who track this informally — or not at all — routinely either overpay tax by missing legitimate deductions, or underpay and face FBR penalties later.
This is exactly what monthly financial reporting from a professional property manager solves. When every rent payment, every maintenance cost, and every management fee is documented monthly, calculating your annual tax liability at filing time takes minutes instead of becoming a stressful scramble through old WhatsApp messages and bank statements every September.
Get Your Rental Income Properly Documented With T2R
Calculating your rental income tax should not require digging through a year of scattered records. T2R provides every landlord we manage with clear, accurate monthly financial reports — gross rent, deductions, management fees, and net income — so that filing your annual return is a simple, accurate process every single year.
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Clear records. Accurate filing. No surprises. That is T2R.
Reference Articles:
- Pakistan Budget 2026-27: Big Relief for Landlords & Rental Income Tax – What It Means for Islamabad Investors
- Pakistan Budget 2026-27 Property Tax Relief: Good News for Buyers, Sellers and Overseas Investors
- Pakistan Budget 2026-27: What Every Property Owner, Landlord and Tenant Needs to Know
- Airbnb Management Company in Islamabad
