ISLAMABAD, August 26, 2025 – The Federal Board of Revenue (FBR) has officially released the tax framework for property income in the upcoming tax year 2025–26, as part of the updated Income Tax Ordinance, 2001, which incorporates amendments introduced through the Finance Act, 2025.
This comprehensive guideline aims to clarify how income from property will be assessed, taxed, and reported.
What Qualifies as Property Income?
Under Section 15, any rent received or receivable by a person, except rent exempt under the Ordinance, will be chargeable to tax under the head “Income from Property.” This includes consideration for the use, occupation, or right to occupy land or buildings, along with forfeited deposits under contracts of sale.
However, if a lease includes plant and machinery, the related payments may be taxed under “Income from Other Sources” rather than as property income.
Key Deductions Allowed
To ensure fair taxation, property owners are entitled to claim specific deductions. These include:
• An allowance equal to one-fifth of the rent for building repairs.
• Insurance premiums paid to protect the property.
• Local taxes, charges, or cess related to property or rent.
• Ground rent, mortgage interest, and profit on borrowed capital used to acquire or renovate the property.
• Administration and collection expenses, capped at four percent of rent.
• Legal expenses to defend ownership or settle disputes.
• Allowance for unpaid rent deemed irrecoverable, provided certain conditions are met.
Interactive Tax Guide – Questions You May Have
1. What if my rent is lower than fair market value?
The FBR may treat the property as if it generated fair market rent, unless the lessee includes the value under taxable salary.
2. Can unpaid rent still qualify for deductions?
Yes, but only if legal action was taken or deemed impractical, and the unpaid rent was previously included in taxable income.
3. What happens if I recover unpaid rent later?
Recovered amounts will be taxed in the year of recovery.
4. Can I claim the same deduction under another head of income?
No, deductions claimed under property cannot be claimed elsewhere.
Compliance Timeline & Practical Tips
• Monthly unaudited statements and annual submissions are mandatory for property owners with taxable rental income.
• Accurate valuation, legal compliance, and timely documentation are critical to avoid penalties.
• Taxpayers should maintain evidence of insurance, mortgage payments, and legal expenses to support claims.
Why This Matters for Property Investors
With real estate remaining a major source of income and wealth creation in Pakistan, the updated guidelines provide clarity for investors, landlords, and tenants. Proper compliance ensures transparency and reduces the risk of audits or trading restrictions for commercial property holders.
What Should You Do Next?
• Review your rental agreements to ensure compliance with fair market rent requirements.
• Consult tax professionals to maximize allowable deductions.
• Use FBR’s online portal to stay updated with changes in property taxation.
Disclaimer:
The information provided above is for general informational purposes only and should not be construed as legal or tax advice. Tax laws, including those governing property income, may change based on future amendments, notifications, or interpretations by the Federal Board of Revenue (FBR). Individuals and businesses are strongly advised to consult qualified tax professionals or refer to official FBR publications before making financial or compliance-related decisions.