My tenant deducted tax from the rent. Is that my final tax, or do I still file?

When a company, school or other prescribed tenant pays rent, it keeps back tax under section 155 of the Income Tax Ordinance, 2001 and gives the landlord a smaller cheque. Many landlords assume that settles their tax. It does not. This page uses the Ordinance as amended to 30 June 2026, for tax year 2027 (1 July 2026 to 30 June 2027).

What does the law say?

Section 155(1) requires the tenant to “deduct tax from the gross amount of rent paid at the rate specified in Division V of Part III of the First Schedule”. It says nothing about the deduction being final.

It once did. The footnote to section 155 records that sub-section (2), which read “The tax deducted under sub-section (1) shall be a final tax on the income from property”, was omitted by the Finance Act, 2010.

Section 168 now governs the deduction:

• Section 168(1)(a): the amount deducted is treated as income derived by the landlord. The landlord’s rent is the gross figure, before the tenant’s deduction.
• Section 168(1)(b): the amount deducted is treated as tax paid by the landlord.
• Section 168(2): the landlord “shall be allowed a tax credit for that tax in computing the tax due” on taxable income for the tax year in which it was deducted.
• Section 168(3) lists deductions that are final taxes and earn no credit. Section 155 is not on the list.
• Section 168(5): a credit that cannot be used for the year is refunded.

How does it work in practice?

The landlord works out the tax in three steps:

1. Income from Property: gross rent less the deductions in section 15A, such as the one-fifth repairs allowance and profit on a loan used to acquire or build the property.
2. Tax on total taxable income, including any other income, at the Division I rates.
3. Less the section 155 credit (and any other credits). The difference is payable with the return, or refundable if negative.

Section 114(1)(ab) requires a return from every person other than a company “whose taxable income for the year exceeds the maximum amount that is not chargeable to tax”. Clause (b) of the same sub-section adds, among others, owners of immovable property of five hundred square yards or more in listed areas and owners of flats of two thousand square feet or more in a rating area. The tenant’s deduction does not change these tests.

Worked example (illustrative figures)

Sana lives in Islamabad, has no other income, and lets a building to a clinic for Rs. 200,000 a month. She is on the active taxpayers’ list.

Step 1: tax deducted by the clinic (Division V, clause (a)).

• Gross rent: Rs. 200,000 x 12 = Rs. 2,400,000.
• Rs. 155,000 + 25% x (Rs. 2,400,000 - Rs. 2,000,000) = Rs. 155,000 + Rs. 100,000 = Rs. 255,000.

Step 2: Income from Property.

• Repairs allowance: Rs. 2,400,000 / 5 = Rs. 480,000.
• Income: Rs. 2,400,000 - Rs. 480,000 = Rs. 1,920,000.

Step 3: tax on taxable income (Division I, clause (1)).

• Rs. 170,000 + 30% x (Rs. 1,920,000 - Rs. 1,600,000) = Rs. 170,000 + Rs. 96,000 = Rs. 266,000.

Step 4: reconcile.

• Rs. 266,000 - Rs. 255,000 credit = Rs. 11,000 payable with the return.

Variation: a loan on the building. Suppose Sana also paid Rs. 700,000 of profit on a bank loan taken to construct the building, deductible under section 15A(1)(e).

• Income: Rs. 2,400,000 - Rs. 480,000 - Rs. 700,000 = Rs. 1,220,000.
• Tax: Rs. 90,000 + 20% x (Rs. 1,220,000 - Rs. 1,200,000) = Rs. 90,000 + Rs. 4,000 = Rs. 94,000.
• Rs. 94,000 - Rs. 255,000 credit = Rs. 161,000 excess, refundable under section 168(5).

The same deduction leaves a balance due in one case and a refund in the other. Only the return shows which.

What if I also have a salary or business?

The rent joins the other income in one taxable income, and the credit is set against the tax on the total. Extra income usually pushes the total into a higher band, so the tenant’s deduction is more likely to fall short. The rent and salary page shows this.

Common mistakes

• Declaring the net cheque as rent. Section 168(1)(a) treats the deducted amount as the landlord’s income, so gross rent is declared.
• Not filing because tax was deducted. The final-tax rule was omitted in 2010, and section 114 filing tests are separate.
• Missing the credit. The deduction is only useful to the landlord if it is claimed against the tax computed in the return.

What to check in the official text

Read sections 155, 168, 114 and 15A, the footnote to section 155 recording the omitted sub-section (2), and Divisions V of Part III and I of Part I of the First Schedule in the source PDF. The return form, due dates and portal steps are outside this page and not held in this corpus.