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TaxCalc.pk
FY 2026-27
Comprehensive guide to Section 155 income from property withholding tax in Pakistan for Tax Year 2027 (FY 2026-27). Slabs for individual and company landlords, corporate tenant obligations, CPR generation, and FBR return reconciliation.
By Syed Asad Hussain Zaidi · 9 September 2026
Author & Legal Oversight: Researched, drafted, and verified by Syed Asad Hussain Zaidi, Advocate High Court (Member, Lahore Tax Bar Association). Fully compliant with Section 155, Division V Part III First Schedule, and Finance Act 2026. View our Editorial Policy.
[Tax Year 2026 Framework]
- Updated for FY 2026 compliance.
- Reflects current FBR and SECP statutory requirements.
If your business leases commercial office space in Pakistan—or if you are an individual landlord renting out plazas, residential apartments, or warehouses—understanding Section 155 of the Income Tax Ordinance, 2001 is legally mandatory.
Under Pakistani statutory law, rent is classified under the distinct head Income from Property, and prescribed tenants must withhold tax at source before remitting net monthly rent to the property owner.
### [Tax Year 2027 Framework: What Changed Under Finance Act 2026]
- Threshold Baseline: Gross annual rental income below PKR 300,000 remains exempt from withholding tax for individual and AOP landlords.
- Total Expense Disallowance: Prescribed corporate tenants failing to deduct Section 155 tax face automatic disallowance of their entire rent expense under Section 21(c).
- The 100% Non-Filer Surcharge: Landlords appearing as Inactive on the FBR Active Taxpayer List (ATL) — universally known as 'Filer status' face a double withholding tax deduction at source.
A frequent misconception among landlords is that every residential tenant can deduct withholding tax from their monthly rent cheque. Under Section 155(1), the statutory duty to deduct tax at source falls strictly upon Prescribed Persons:
Crucial Rule for Residential Leases: An ordinary salaried individual renting a residential bungalow or apartment for personal living is not a prescribed person and has zero legal authority to deduct Section 155 tax.
Use our interactive Rent Withholding Tax Calculator (Section 155) to determine monthly and annual withholding deductions instantly.
Under Division V, Part III of the First Schedule to the Income Tax Ordinance, 2001, the following progressive withholding schedule applies to individuals and AOPs receiving rent:
| Gross Annual Rent Bracket (PKR) | Statutory Withholding Rate | Formula for Tax Payable | Filer vs Non-Filer Impact | |:---|:---:|:---|:---:| | Up to Rs. 300,000 | 0% | Nil | Zero withholding | | Rs. 300,001 to Rs. 600,000 | 5% | 5% of the amount exceeding Rs. 300,000 | Filer: 5% vs Non-Filer: 10% | | Rs. 600,001 to Rs. 1,000,000 | Rs. 15,000 + 10% | Rs. 15,000 plus 10% of excess over Rs. 600,000 | Filer: 10% vs Non-Filer: 20% | | Rs. 1,000,001 to Rs. 2,000,000 | Rs. 55,000 + 15% | Rs. 55,000 plus 15% of excess over Rs. 1,000,000 | Filer: 15% vs Non-Filer: 30% | | Exceeding Rs. 2,000,000 | Rs. 205,000 + 20% | Rs. 205,000 plus 20% of excess over Rs. 2,000,000 | Filer: 20% vs Non-Filer: 40% |
Where the landlord is a Company (e.g., a real estate management firm or holding company), Section 155 does not apply progressive slabs. Prescribed corporate tenants must deduct a flat 15% from the gross rental payment for active filer companies, and 30% for non-filer corporate landlords.
- Amount exceeding PKR 2,000,000: PKR 400,000 - 20% tax on PKR 400,000: PKR 80,000
A major source of dispute in commercial leases is the taxation of security deposits and upfront bulk advances.
Under Section 16 of the Income Tax Ordinance, 2001, the law draws a strict boundary between refundable and non-refundable receipts:
If the tenancy contract explicitly stipulates that the deposit is strictly refundable upon vacant possession, no tax applies under Section 155 or Section 16. The tenant must not deduct withholding tax from this deposit, and the landlord does not report it as taxable rental income.
Where an advance amount is received that cannot be adjusted against actual monthly rent, Section 16 treats one-tenth (10%) of the total advance as taxable property income each year for ten consecutive years.
If the tenancy terminates before the expiry of ten years, the unamortized balance is eliminated, and any fresh advance received from a subsequent tenant is taxed on a fresh ten-year schedule.
In modern urban hubs like Karachi, Lahore, and Islamabad, co-working operators frequently lease full commercial floors and sub-lease individual desks, private cabins, and executive suites to freelancers and software agencies.
The tax treatment depends upon the scope of ancillary amenities provided:
In serviced workspace contracts, corporate clients deduct tax under Section 153(1)(b) (Withholding on Services) at 8% for corporate filers or 11% for individual filers, rather than Section 155 property rent tax.
Prescribed corporate tenants must deposit withheld rent tax into the Federal Treasury by the 15th day of the month following deduction using this procedural sequence:
If a company pays PKR 5,000,000 in commercial rent during the fiscal year but fails to deduct Section 155 tax, FBR field auditors will disallow the entire PKR 5,000,000 expense under Section 21(c).
This adds PKR 5,000,000 directly back to your company's taxable net profit, triggering an immediate 29% corporate tax liability (PKR 1,450,000) plus penalty interest.
Many individual landlords assume that once the tenant deducts tax, they do not need to report property income on FBR Iris.
Section 155 is strictly an adjustable advance tax. Landlords must report gross rent under "Income from Property" in their annual Form 114 return, claim statutory deductions (such as 1/5th repair allowance under Section 15A), and adjust the CPR deductions against their final tax liability.
If a corporate landlord is in a continuous tax loss position or possesses carried-forward tax depreciation, paying 15% withholding tax at source severely strains operational cash flows. Under Section 159(1), the landlord can apply to the Commissioner for an official Zero-Withholding Exemption Certificate, authorizing corporate tenants to remit 100% gross rent without any tax deduction.
## TaxCalc Advisory Insights: Commercial Tenancy Agreements
> * Draft Explicit Gross Rent Terms: Never draft a commercial tenancy contract stating "PKR 250,000 net in hand." Under tax law, tax must be withheld from the gross figure. Ambiguous wording leads to bitter disputes over who bears the tax deduction.
* Reclaim 1/5th Repair Allowance: Under Section 15A(1)(a), individual landlords are entitled to a mandatory statutory deduction of 20% (one-fifth) of gross rent for repairs, regardless of whether actual repair expenditures were incurred.
* Quarterly Withholding Reconciliation: Corporate tenants must reconcile Section 155 deductions in their quarterly withholding statements under Section 165 to prevent automated show-cause notices.
Ensure flawless corporate expense deductions and protect your rental income from FBR scrutiny:
Disclaimer: Tax rates and withholding thresholds shift via statutory SROs issued by the FBR. While this publication reflects active rules for Tax Year 2027 (FY 2026-27), it does not constitute individual tax or legal counsel. Consult an Advocate High Court or registered tax consultant before executing major tenancy contracts.
Legal & Statutory Notice: The information provided in this publication is for general educational, academic, and statutory informational purposes only under the relevant laws of Pakistan (including the Income Tax Ordinance, 2001, the Companies Act, 2017, and the Trade Marks Ordinance, 2001). This content does not constitute formal legal, financial, or tax advice. For specific assessments, consult a licensed Advocate or qualified tax professional.
