Pakistan Practical Taxation Course Post 7
Title
Section 155 – Income from Property Explained with Practical Examples (Pakistan Tax Guide)
Introduction
Rental income is one of the most common sources of income in Pakistan, especially for individuals owning residential or commercial properties. The taxation of rental income is governed mainly under Section 15 and Section 155 of the Income Tax Ordinance, 2001.
Many landlords face confusion regarding tax rates, withholding tax, filing requirements, and adjustments, which often leads to incorrect tax returns or unnecessary penalties.
This post explains Section 155 – Income from Property in a simple and practical manner.
What Is Section 155 – Income from Property
Section 155 deals with tax collection at source on rental income. Under this section, tax is collected on gross rent received from property.
The tax deducted under Section 155 may be:
• Adjustable tax
• Or treated as final tax
This depends on the nature of the taxpayer and total income level.
What Is Considered Income from Property
Income from property includes:
• Rent received from residential property
• Rent received from commercial property
• Lease income
• Amounts received for the use of the building or land
Advance rent and arrears of rent are also taxable under specific rules.
Tax Rates on Rental Income
Rental income is taxed under separate slab rates, which are different from salary tax slabs.
Tax is calculated on gross rent, and no business expenses are allowed except standard deductions as prescribed by law.
Tax slabs and rates are revised periodically through the Finance Act, so current rates must always be applied.
Who Deducts Tax Under Section 155
Tax deduction depends on the nature of the tenant:
• If the tenant is a company, firm, or organization, they are required to deduct tax at source
• If rent is received from an individual tenant, tax is generally paid by the landlord through return filing
The deducted tax must be deposited with FBR and reported in withholding statements.
Adjustable vs Final Tax on Rental Income
For certain individuals, tax deducted under Section 155 is treated as final tax, meaning:
• Rental income is not added to other income
• No adjustment is allowed
In other cases, tax is adjustable and must be declared in the annual income tax return.
Correct classification is very important to avoid overpayment or underpayment of tax.
Rental Income in Annual Tax Return
Every landlord must:
• Declare gross rental income
• Declare tax deducted under Section 155
• File annual income tax return
• File wealth statement showing property ownership
Even if tax is deducted at source, return filing remains mandatory to stay on the active taxpayer list.
Common Mistakes in Property Income Tax
• Not declaring rental income due to withholding
• Applying wrong tax rates
• Ignoring advance rent treatment
• Incorrect reporting of tenant details
• Missing wealth statement disclosure
These mistakes often result in FBR notices and penalties.
Practical Importance of Section 155
Understanding Section 155 helps you:
• Calculate correct rental tax
• Decide whether tax is final or adjustable
• File accurate income tax returns
• Avoid penalties and audits
• Plan property investments efficiently
What’s Coming Next
In Post 8, we will cover:
Section 153 – Tax on Goods, Services and Contracts (Complete Practical Guide)
Instructor
Pakistan Practical Taxation Course Post 7 FI
This Practical Taxation Course is prepared and delivered by:
Muhammad Taha Farooq
APFA | ITP
Previous Post Pakistan Practical Taxation Course Post 6
Next Post Pakistan Practical Taxation Course Post 8
