Karachi, June 11, 2025 – The Finance Bill 2025 has proposed a significant amendment to the Income Tax Ordinance, 2001, by introducing a minimum fair market value benchmark for rental income derived from commercial properties.
This change falls under Section 15, which deals with “Income from Property,” and aims to enhance transparency and curb tax evasion related to underreported rental earnings.
According to the proposed amendment, the minimum fair market rental income for commercial properties shall be calculated as four percent of the fair market value of the property annually, in accordance with Section 68 of the Ordinance. This provision is designed to establish a baseline for declaring rental income, thereby reducing discrepancies between declared rent and actual market conditions.
However, an important safeguard has also been included. The proposed clause states that this minimum rental value will not apply if the taxpayer can furnish credible evidence proving a lower actual rent. This evidence must satisfy the Commissioner of Inland Revenue to be considered valid, allowing for flexibility in genuine cases where rental income falls below market benchmarks.
As per the revised Section 15, rental income refers to the rent received or receivable by a person during the tax year, excluding rent that is specifically exempt. It encompasses all payments made as consideration for the use or occupation of land or buildings. In situations where the rent received is lower than the determined fair market rent, the taxpayer will be deemed to have earned the fair market rent, thus making it taxable accordingly.
Sub-section 3 clarifies that leases involving buildings along with plant and machinery will not fall under the “Income from Property” category. Instead, such income will be treated under the head “Income from Other Sources.” Similarly, charges related to amenities or utilities associated with a rental arrangement will also be taxed under this alternative head.
By setting a minimum threshold for rental income from commercial properties, the government aims to broaden the tax base, promote accurate declaration of property-based earnings, and ensure fair revenue collection. If passed, this measure could significantly impact property owners who currently report nominal or artificially low rents to reduce their tax liability.