Pakistan Income Tax Guide 2025-26

Income tax in Pakistan is a direct tax levied by the Federal Board of Revenue (FBR) on the annual taxable income of individuals, associations of persons (AOPs), and companies. It is governed by the Income Tax Ordinance 2001 and amended each year through the Finance Act. For the fiscal year 2025-26 (1 July 2025 to 30 June 2026), the Finance Act 2025 updated the tax slabs, surcharge rules, and withholding provisions to align with Pakistan's IMF-driven revenue targets. Every resident individual whose annual income exceeds the exempt threshold — currently PKR 600,000 — is required to compute and pay income tax. Non-residents are taxed only on Pakistan-sourced income. The tax year in Pakistan runs from 1 July to 30 June, and individual taxpayers are broadly classified into two categories: salaried individuals and non-salaried (business) individuals, each subject to a separate set of progressive tax brackets.

The Finance Act 2025 introduced the following progressive tax slabs for salaried individuals: • Up to PKR 600,000 — 0% (exempt) • PKR 600,001 to PKR 1,200,000 — 1% on the amount exceeding PKR 600,000 • PKR 1,200,001 to PKR 2,200,000 — PKR 6,000 + 11% on the amount exceeding PKR 1,200,000 • PKR 2,200,001 to PKR 3,200,000 — PKR 116,000 + 23% on the amount exceeding PKR 2,200,000 • Above PKR 3,200,000 — PKR 346,000 + 30% on the amount exceeding PKR 3,200,000 Non-salaried individuals and business owners follow a different rate schedule with higher rates — up to 45% on income above PKR 5.6 million. A 9% surcharge is also applied to the computed tax for individuals whose taxable income exceeds PKR 10,000,000 (PKR 1 crore) in a tax year. For the complete breakdown of both salaried and non-salaried slabs with comparison tables, see our dedicated Income Tax Slabs Pakistan page. Using our Pakistan Tax Calculator, you can instantly see which slab applies to your income, the exact tax payable, your effective tax rate, and the monthly take-home amount — all updated for FY 2025-26.

The FBR distinguishes between salaried and non-salaried individuals because salaried employees have a more predictable income stream and their employer deducts tax at source (withholding tax) each month under Section 149 of the Income Tax Ordinance. The employer deposits this withholding to FBR on the employee's behalf. A salaried individual is one whose salary income constitutes at least 75% of total taxable income. If business or freelance income pushes this proportion below 75%, the taxpayer is reclassified as non-salaried and must apply the corresponding (generally higher) rate schedule. Non-salaried taxpayers — including self-employed professionals, sole proprietors, shop owners, and freelancers — are responsible for computing and paying advance tax on a quarterly basis and filing an annual income tax return.

Income tax returns in Pakistan are filed electronically through the FBR IRIS portal (iris.fbr.gov.pk). The deadline for filing annual returns is 30 September for salaried individuals and 31 December for businesses and AOPs, though the FBR frequently extends these deadlines. Steps to file: 1. Register on IRIS using your CNIC to obtain a National Tax Number (NTN). 2. Log in to IRIS and navigate to "Declaration → 114(1) Return of Income." 3. Enter all income sources: salary, rental income, capital gains, business income, and foreign remittances. 4. Claim applicable deductions: pension contributions, charitable donations, mortgage interest, and education expenses. 5. Verify advance and withholding taxes already paid via bank challans or employer certificates (Form 16A). 6. Submit the return electronically. A system-generated acknowledgement is issued immediately. Filing your return — even if your income is below the taxable threshold — is strongly recommended, as it adds your name to the Active Taxpayers List (ATL). ATL membership reduces withholding tax rates on bank transactions, property purchases, vehicle registrations, and more.

Pakistan's tax system relies heavily on withholding taxes, which are collected at source on dozens of transactions — from bank profit to property sales, from mobile phone bills to prize bonds. The withholding agent (a bank, employer, or business buyer) deducts the tax and deposits it with FBR. Key withholding tax rates for FY 2025-26: • Bank profit on savings accounts: 15% for filers, 30% for non-filers • Cash withdrawal from banks: 0.6% for non-filers (above PKR 50,000 per day) • Property purchase (buyer): 3% for filers, 6% for non-filers (varying by value) • Property sale (seller): As per CGT schedule • Dividend income: 15% (final tax) • Prize bonds / lottery: 15% Amounts withheld are adjustable against final tax liability when you file your return. If WHT exceeds your final liability, you can claim a refund through IRIS.

Pakistani tax law allows several deductions and credits that can significantly reduce your tax liability: Deductible Allowances: • Approved pension fund contributions (Section 60A): Up to 20% of taxable income or PKR 1,500,000, whichever is lower. • Education expenses (Section 60D): 5% tax credit for tuition paid to a registered Pakistani institution. • Mortgage interest on first home (Section 64A): Up to PKR 2,000,000 per year. • Medical allowance: Up to 10% of basic salary is exempt for salaried employees. Charitable Donation Credit (Section 61): Donations to approved NPOs and government funds qualify for a tax credit equal to the donation amount × the applicable tax rate, subject to a cap of 30% of taxable income. Use our Tax Rebate Calculator to model the exact PKR saving from each eligible credit before you file.

Capital Gains Tax (CGT) applies to profits on the disposal of immovable property and listed securities. For immovable property (Section 37), the CGT rate depends on the holding period: • Held up to 1 year: 15% • Held 1–2 years: 12.5% • Held 2–3 years: 10% • Held 3–4 years: 7.5% • Held 4–5 years: 5% • Held 5–6 years: 2.5% • Held more than 6 years: 0% (exempt) For listed securities (shares, mutual funds): • Held less than 12 months: 15% • Held 12+ months: 12.5% (or exempt if purchased before a notified cut-off date) CGT is a separate tax head; profits are not added to regular income for slab rate purposes. Use our Capital Gains Tax Calculator for an instant estimate based on purchase price, sale price, and holding period.

The FBR maintains the Active Taxpayers List (ATL), published weekly. Individuals who file their annual income tax return on time appear on the ATL and are classified as "filers." Those who do not file — or file late — are classified as "non-filers." The financial consequences of non-filer status are severe and deliberately punitive. Non-filers pay double or triple withholding tax on most transactions, cannot purchase property above PKR 5 million, cannot register vehicles above 800cc in their own name, and face higher WHT on banking transactions. Since the Finance Act 2024, banks are also required to block certain account services for habitual non-filers. Filing your return and staying on the ATL is therefore not merely a legal obligation — it is a direct financial saving on every major transaction you make throughout the year.

TaxCalculatorPro offers a suite of free, FBR-compliant tools to help salaried employees, freelancers, and business owners understand their tax obligations at a glance: • Pakistan Income Tax Calculator — Instant slab-based tax and take-home pay • Salary Tax Calculator — Monthly salary breakdown with employer WHT • Tax Rebate Calculator — Pension, charity, education, and mortgage credits • Capital Gains Tax Calculator — Property and securities CGT • Tax Liability Calculator — All income sources with WHT offset • Tax Deduction Calculator — Maximum allowable FBR deductions All calculators are updated for the Finance Act 2025 and require no sign-up. Results are for educational purposes; please consult a chartered accountant for official tax filings.