IT 9

Rental income: residential rental income tax and commercial rent

1Scope and legal basis

Rent is income from a right granted to another person for the use or occupation of property, charged under section 3(2)(a)(iii) of the Income Tax Act. Since 1 January 2016 section 6A has taxed a resident person's income from residential property under a simplified regime: where the gross rent is above KES 288,000 and does not exceed KES 15 million a year, tax is 7.5% of the gross rent (reduced from 10% by the Finance Act 2023 with effect from 1 January 2024) as a final tax, with no deductions, filed and paid monthly. Rent outside that band (commercial premises, residential rent above KES 15 million, and any landlord who elects out) is taxed under the normal rules: gross rent less allowable expenses, at the individual bands or the company rate. A non-resident landlord's rent is subject to withholding tax at 30% on gross, and the Finance Act 2026 adds a 30% self-assessment regime so that a non-resident whose tenant did not withhold accounts for the tax directly. The KRA's eRITS system, rolled out in September 2025, and appointed rental income agents (property managers, who withhold 7.5%) are the enforcement tools.

2Key definitions

Residential rental income

Rent received by a resident person from the use or occupation of residential property, where the aggregate gross rent for the year is more than KES 288,000 and not more than KES 15 million. 'Residential' means used for dwelling; mixed premises are apportioned.

Monthly rental income tax (MRI)

The KRA's name for the section 6A regime: a return and payment each month by the 20th of the following month, at 7.5% of the gross rent received in the month, final.

Gross rent

All amounts received for the occupation, including service charges and deposits retained; no deduction for agents' fees, repairs, rates, mortgage interest or depreciation under the MRI regime.

Election out

A landlord within the band may elect in writing to the Commissioner to be taxed under the normal regime instead (useful where expenses and capital allowances exceed the 7.5% saving, for example a newly built block with heavy interest); the election is for a year at a time.

Rental income agent

A person appointed by the Commissioner under section 35 to withhold rental income tax on rent it collects or pays: property managers and agents (7.5% on residential rent, 10% on commercial rent), and specified corporate tenants; the withholding is a credit against the landlord's MRI or income tax.

3Charge, computation and rates

The three regimes

Landlord and property	Base	Rate	Filing
Resident, residential property, gross rent KES 288,001 to 15,000,000 a year	Gross rent received each month, no deductions	7.5%, final	Monthly MRI return and payment by the 20th; no annual reconciliation needed but the rent is reported in the annual return as final-tax income
Resident, residential rent of KES 288,000 or less a year	Outside MRI; taxed under the normal regime with expenses (in practice often below the taxable threshold after personal relief)	Graduated rates	Annual return by 30 June
Resident, residential rent above KES 15 million, or commercial property, or an elected landlord, or a company	Gross rent less allowable expenses (agent's fees, repairs and maintenance, insurance, county rates and land rent, interest on a loan to buy or build the property, salaries of caretakers, legal fees for leases, bad rent written off) and capital allowances on commercial buildings at 10% a year	Individual graduated rates with personal relief, or 30% for a company	Annual return; instalment tax where the tax exceeds the threshold; 10% withholding by agents credited
Non-resident landlord	Gross rent	30%, final, withheld by the tenant or agent; from 1 July 2026 a 30% self-assessment where not withheld	Withholding return within five working days; non-resident files the new rental return

Njeri's flats and shops, 2026
Njeri, a resident individual, owns a block of six flats let at KES 25,000 a month each (annual gross 1,800,000) and two ground-floor shops let at KES 40,000 a month each (annual gross 960,000). Expenses for the year: agent's fees 138,000 (5% of all rent), repairs 220,000, county rates 60,000, loan interest 400,000, caretaker 180,000. Allocate expenses by rent: flats 65%, shops 35%.
Flats: within the MRI band (1,800,000 is between 288,000 and 15 million and the property is residential). MRI = 7.5% × 150,000 a month = KES 11,250 a month, KES 135,000 a year, final; no expenses deducted. If her agent collects the rent, the agent withholds the 7.5% and she reports the credit.
Shops: commercial, normal regime. Gross 960,000 less expenses 35% × 998,000 = 349,300 gives net rental income KES 610,700, added to her other income and taxed at the graduated rates; the 10% commercial rent withholding of 96,000 (if the tenants are appointed agents) is a credit.
Election check: had she elected out of MRI for the flats, the flats' net income would be 1,800,000 - 65% × 998,000 = 1,151,300 taxed at up to 30% (about 340,000 of tax at her marginal rate) against MRI of 135,000; she stays in MRI.
A residential rent of KES 20 million a year would take her out of the MRI band entirely, so all the residential rent would be taxed on the net basis.

Points of detail

The band is tested on the aggregate residential rent of the person for the year, across all their residential properties; a landlord who crosses KES 15 million in a year moves to the normal regime for the whole year.
Jointly owned property: each co-owner is taxed on their share and tests the band on their share; spouses may be assessed separately on their own rental income.
Furnished lettings and short stays (Airbnb): rent from residential premises is within MRI where the letting is of residential property; where services beyond accommodation are provided so that it is a hospitality business, it is business income and may also be within VAT and the tourism levy.
Deposits: a refundable deposit is not rent until forfeited; service charges collected and spent on the tenants' behalf are not rent if accounted for separately, but are gross rent where the landlord keeps them.
Companies letting residential property are within MRI if their residential rent is within the band (section 6A applies to 'a person'), though most elect out because they have expenses and capital allowances; REITs are exempt at the vehicle level.
Rent received in advance is taxed when received under MRI (cash basis) and when it accrues under the normal regime (accruals basis).

4Compliance: returns, payment and penalties

MRI: register the rental income obligation on iTax (eRITS now pre-populates the landlord's properties from the rental income declared by tenants and agents), file the monthly return and pay by the 20th of the following month; a nil return is filed for a month with no rent. Late filing costs KES 2,000 a month for an individual (KES 20,000 for a company) or 5% of the tax, whichever is higher; late payment 5% plus interest at 1% a month.
Normal regime: keep rent books, leases, expense receipts and eTIMS invoices for expenses; file the annual return by 30 June (individuals) or six months after year end (companies) with a rental income schedule; pay instalment tax where applicable; claim the 10% commercial rent withholding certificates as credits.
Agents: an appointed rental income agent withholds 7.5% or 10%, remits within five working days, issues withholding certificates and files the withholding return; failure attracts the 10% penalty on tax not withheld and personal liability.
Non-residents: the tenant or agent withholds 30% and remits within five working days; a non-resident landlord whose tenants did not withhold files the annual non-resident rental return and pays 30% on gross under the Finance Act 2026 regime.
The Commissioner uses county rates records, the land registry, utility connections, eTIMS, mobile money and tenant declarations to identify undeclared rent, and issues estimated assessments to landlords who do not file; the taxpayer then has 30 days to object.

5Examinable focus

What KASNEB tests

A landlord with mixed residential and commercial property, a set of expenses and a loan is the standard question: separate the residential rent (MRI at 7.5% on gross, monthly, final, no expenses) from the commercial rent (net basis, annual, graduated rates), test the KES 288,000 to 15 million band on the aggregate residential rent, allocate expenses only to the commercial part, and advise whether an election out of MRI would pay. State the deadlines (20th of the following month for MRI) and the agent withholding rates (7.5% residential, 10% commercial). The non-resident landlord at 30% gross and the 2026 self-assessment regime are the current additions; eRITS is the administrative talking point.