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Filing Rental Income Returns - Step by Step Guide

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🏠 Rental Income Tax in Kenya

If you earn rental income from property in Kenya, you must declare and pay tax on it. There are two tax regimes:

📊 Monthly Rental Income (MRI) Tax

For: Residential rental income up to KES 15 million per year

  • Flat rate of 7.5% on gross rent
  • Paid monthly by 20th of following month
  • No deductions allowed
  • Simpler compliance

📈 Normal Income Tax

For: Rental income above KES 15 million OR commercial property

  • Taxed at graduated rates (10%-35%)
  • Expenses can be deducted
  • Filed annually with other income
  • More complex but may be beneficial

📋 Monthly Rental Income (MRI) Tax - Step by Step

For residential rental income up to KES 15 million per year:

1

Register for MRI Tax

If not already registered, go to iTax → "Registration" → "Amend PIN Details" → Add "Rental Income Tax" obligation.

2

Log in to iTax Monthly

Visit itax.kra.go.ke and log in.

3

Navigate to Returns

Click "Returns" → "File Returns" → Select "Rental Income Tax".

4

Select Return Period

Choose the month you're filing for (e.g., January 2025).

5

Enter Rental Details

For each property:

  • Property Location: County, town, building name
  • Property Type: Residential
  • Gross Rent Received: Total rent for the month
6

Calculate Tax

The system calculates: Gross Rent × 7.5% = Tax Payable

Example: Rent of KES 50,000/month
Tax = 50,000 × 7.5% = KES 3,750
7

Submit and Pay

Submit the return and pay via M-Pesa Paybill 572572 by the 20th of the following month.

📋 Annual Rental Income Filing (Normal Tax)

For commercial property or if you opt out of MRI:

1

Gather Documents

  • Rental agreements/leases
  • Rent receipts or bank statements
  • Expense receipts (repairs, insurance, rates)
  • Mortgage interest statements
  • Agent commission receipts
2

File Annual Return

Go to "Returns" → "File Returns" → "Income Tax - Resident Individual".

3

Answer Questionnaire

Answer "Yes" to "Did you have rental income?"

4

Enter Rental Income Details

For each property:

  • Property Description: Location and type
  • Annual Gross Rent: Total rent received
  • Allowable Expenses: See list below
  • Net Rental Income: Gross - Expenses
5

Submit Return

Review and submit by 30th June each year.

💰 Allowable Deductions (Normal Tax Only)

If filing under normal income tax, you can deduct:

Expense Type Deductible? Notes
Repairs & Maintenance ✅ Yes Must be revenue, not capital expenditure
Insurance Premiums ✅ Yes Property insurance only
Land Rates ✅ Yes County government rates
Agent Commissions ✅ Yes Property management fees
Mortgage Interest ✅ Yes Interest portion only, not principal
Legal Fees ✅ Yes For rent collection, evictions
Advertising ✅ Yes To find tenants
Capital Improvements ❌ No New construction, major renovations
Personal Expenses ❌ No Not related to rental business

📊 MRI vs Normal Tax - Which is Better?

Example Comparison:

Annual Rent: KES 600,000 (KES 50,000/month)

Expenses: KES 150,000 (repairs, rates, insurance)

Item MRI Tax Normal Tax
Gross Rent 600,000 600,000
Less: Expenses 0 (not allowed) 150,000
Taxable Income 600,000 450,000
Tax Rate 7.5% 30% (assuming this bracket)
Tax Payable KES 45,000 KES 135,000

Result: MRI is better in this case!

💡 Rule of Thumb: MRI (7.5%) is usually better unless your expenses exceed 75% of gross rent, or you have losses to carry forward.

🎥 Video Tutorial

▶️ Watch KRA Rental Income Filing Tutorial

❓ FAQs

Q: Do I pay MRI tax if my property is vacant?

A: No, MRI is only on rent actually received. File a nil return for vacant months.

Q: Can I switch from MRI to normal tax?

A: Yes, but you must apply to KRA and the change applies from the next tax year.

Q: What if my tenant doesn't pay rent?

A: Under MRI, you only pay tax on rent received. Under normal tax, you can claim bad debts.

Q: Do I need to file annual returns if I pay MRI monthly?

A: Yes, you still need to file an annual return declaring your rental income.

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