If you are a landlord, then you are expected to pay your fair share of tax every month from your rental income. The tax is known as Monthly Rental Income (MRI), which was introduced through the Finance Act 2015.
MRI applies to resident individuals or companies that earn rental income from residential properties in Kenya. Following the Finance Act 2020, MRI applies to individuals and companies with rental income between KES 280,000 and KES 15 million in any given year.
Effective January 1, 2024, the tax rate for MRI was set at 7.5% of the gross rent received. This is considered a final tax, meaning no deductions for expenses, losses, or capital allowances are permitted from the gross rent.
How to Register a Property on iTax
- Visit the KRA web portal, iTax.
- Under the “Registration” tab, select “Register Property details then click “Next.”
- You’ll see two sections: Section A, which is auto-filled with your landlord details, and Section B, where you’ll input property specifics based on one of three options:
- New property: For first-time registrations.
- Update property: To amend existing property details.
- Deregister property: To cancel previously registered information.
- After choosing your property type, enter the PIN of one of your tenants. The system will then auto-populate their name.
- Fill in all required details, including the estimated monthly rental income. Click “Add.
- Add any relevant remarks under “Application Remarks” and click “Submit.”
- You’ll receive an “Acknowledgement Receipt” once your property details are successfully registered.
How to File Rental Income on iTax
To submit your tax return from property rent, visit itax.kra.go.ke and navigate to the “Returns” tab. Click on “File Return,” then select the “Income Tax – Rental Income” obligation before proceeding. You will then find two sections to complete.
Section A requires you to specify whether you are submitting an Original Return or an Amended Return.
In Section B:
- The total number of properties will automatically populate based on your registered details; if none are listed, you’ll need to enter this manually.
- Input your monthly rental income.
- The tax on rental income will be automatically calculated.
- Any rental withholding certificates and credits for the relevant month will auto-populate, and the system will factor these into the final tax due.
- The final step is to simply click ‘Submit’.
How to Pay Monthly Rental Income to KRA
After successfully filing your MRI return, here’s how to generate a payment slip:
- Go to itax.kra.go.ke and, under the ‘Payments’ tab, select ‘New Payment Registration’.
- Choose ‘Income Tax’ as the tax head and ‘Income tax – Rent’ as the tax sub-head.
- Select ‘Self-Assessment Tax’ (since your return is already filed), then enter the relevant tax period (year and month).
- Click ‘Add’, pick your preferred payment mode, and then press ‘Submit’.
- You’ll receive a unique payment registration number. Use this number for either mobile payments or bank transactions.
Since MRI is a final tax, individuals and companies paying it are not required to declare this income again in their annual income tax returns.
When a person withholds an MRI, they must remit the deducted amount to the Commissioner within five working days of the deduction, accompanied by a written return detailing the tax paid.
Penalties for Late Filing of MRI
- KES 2,000 or 5% of the tax due (whichever is higher) for individuals.
- KES 20,000 or 5% of the tax due (whichever is higher) for corporate bodies.
- A late payment penalty of 5% of the tax due is also applied. Additionally, late payment interest is charged at 1% per month (or part thereof).
MRI does not apply to rental income derived from commercial properties, nor does it apply to non-resident landlords or those whose annual rental income exceeds KES 15,000,000.
Property owners earning income from the rent of above KES 15 million per year will be required to declare the income together with incomes from other sources (if any) while filing their annual Income tax returns.