Rental income up to Rs300,000 remains tax-free for individuals and AOPs, while companies continue to face a flat 15% withholding tax.
ISLAMABAD: The Federal Board of Revenue (FBR) has notified the income tax rates applicable to property income for Tax Year (TY) 2027, which commenced on July 1, 2026, following amendments introduced through the Finance Act, 2026.
The revised rates have been incorporated into the updated Income Tax Ordinance, 2001, amended up to June 30, 2026, outlining the withholding tax framework for rental income earned by individuals, associations of persons (AOPs) and companies.
Tax rates for individuals and AOPs
Under Section 155 of the Income Tax Ordinance, 2001, withholding tax on rental income received by individuals and AOPs will be charged according to the following income slabs:
| Gross Annual Rent | Tax Rate |
| Up to Rs300,000 | Nil |
| Exceeds Rs300,000 but does not exceed Rs600,000 | 5% of the amount exceeding Rs300,000 |
| Exceeds Rs600,000 but does not exceed Rs2,000,000 | Rs15,000 plus 10% of the amount exceeding Rs600,000 |
| Exceeds Rs2,000,000 | Rs155,000 plus 25% of the amount exceeding Rs2,000,000 |
The tax is required to be deducted at source from rental payments in accordance with the thresholds prescribed under Section 155.
Companies to pay flat 15% withholding tax
For companies, the FBR has retained a flat withholding tax rate of 15% on the gross amount of rent received, irrespective of the total amount of rental income.
The withholding tax will apply to all rental payments made to companies under the provisions of Section 155 of the Income Tax Ordinance, 2001.
Updated under the Finance Act, 2026
The notified rates form part of the updated Income Tax Ordinance, 2001, incorporating amendments made through the Finance Act, 2026, and are applicable for Tax Year 2027, which began on July 1, 2026.
The FBR said the updated withholding tax framework provides clarity for taxpayers, withholding agents, landlords, tenants and companies regarding their obligations on rental income and supports compliance with the provisions of the Income Tax Ordinance.