Income from Other Sources Pakistan 2026
Bank Profit · Prize Bonds · Royalties · Miscellaneous Income

Pakistan's income tax system divides taxable income into five main heads: salary, business income, property income, capital gains, and “income from other sources.” That fifth category — income from other sources — is a catch-all provision that captures every taxable receipt that does not fit neatly into the first four heads. For many Pakistani taxpayers, this is the most confusing part of their tax return: bank profit, prize bond winnings, dividend income, royalties, gifts, and miscellaneous receipts all potentially fall into this category, each with its own withholding tax rate, final-tax status determination, and declaration requirements in FBR's IRIS system.

This guide explains every major category of other-source income in Pakistan, the applicable withholding tax rates for 2026, whether each type is a final tax or requires separate computation under the normal income tax slabs, how to correctly declare each type in your annual return on IRIS, and the wealth statement implications of failing to declare income you received but assumed was “already taxed” at source. Understanding these rules protects you from Section 111 unexplained income notices and ensures your return accurately reflects your full economic activity for the year.

What Is Income from Other Sources in Pakistan Tax Law?

Section 39 of the Income Tax Ordinance 2001 defines income from other sources as the income of a person for a tax year from every source not classified under salary, business, property, or capital gains heads. This definition is deliberately broad — it functions as a legislative safety net ensuring that no taxable income escapes the income tax system simply because it does not fit a named category. If a receipt has economic value and cannot be excluded under a specific exemption, and it is not classifiable under one of the four named heads, it falls into “other sources.”

Common examples of other-source income in Pakistan include:

• Profit on savings and bank deposits — interest/profit paid by banks, NBFIs, and Post Office savings schemes on current accounts, savings accounts, term deposits, and certificates
• Prize bond winnings — prizes paid by the State Bank of Pakistan or National Savings on prize bonds and savings certificates with prize draws
• Dividend income — cash dividends from companies (listed and unlisted), mutual funds, and REITs paid to individual shareholders
• Royalty income — payments for the use of intellectual property including copyrights, patents, trademarks, software licenses, and technical know-how
• Director’s fees — fees paid to non-executive directors attending board meetings, where the person is not otherwise an employee of the company
• Income from lending personal assets — income from lending personal equipment, vehicles, or other assets where this does not constitute a property income or business activity
• Gifts from non-relatives — cash gifts from persons outside the immediate family circle that cannot be excluded under the relevant exemption provisions
• Foreign-source income — income from abroad received by a Pakistani resident that does not fall under another head

The critical practical point about other-source income is this: even when withholding tax is deducted at source — and for many categories of other-source income, WHT is deducted automatically by the bank or paying entity — the income must still be declared in your annual return. Failure to declare creates a wealth reconciliation gap. FBR cross-matches data from banks, prize bond encashments, company dividend payments, and other sources against individual tax returns. If you received Rs. 500,000 in bank profit during the year but did not declare it in your return, FBR will identify the discrepancy during data matching and issue a Section 111 notice questioning the unexplained increase in your financial position.

Bank Profit / Interest Income — Section 7B

Profit on bank deposits — commonly called “bank profit” or “mark-up” in Pakistan — is one of the most universally earned forms of other-source income. Almost every Pakistani taxpayer who holds a bank account earns some amount of bank profit during the year, and this income has specific withholding tax treatment under Section 7B of the Income Tax Ordinance.

Banks and financial institutions are required to deduct WHT on profit payments to depositors at the following rates for tax year 2026:

The WHT deducted by the bank under Section 7B is a final tax for most individual depositors. This means that once 15% (or 30%) is deducted at source, no additional income tax is computed on the bank profit under the normal individual income tax slabs. The tax obligation on that income is fully satisfied at source.

However, “final tax” does not mean “no need to declare.” You must still:

• Include the bank profit amount in your annual return under the “Income from Other Sources — Bank Profit” head in IRIS
• Show the Section 7B WHT deducted as final tax paid against that income
• Ensure the bank profit appears in your wealth statement reconciliation — the profit earned during the year increases your wealth (bank balance) and must be accounted for in the reconciliation of opening to closing wealth

Every bank in Pakistan is required to issue an annual profit statement to each account holder by August of the following tax year. This statement shows total profit earned on each account during the tax year and the total WHT deducted. Use this statement to accurately populate your IRIS return. If you hold accounts at multiple banks, collect annual profit statements from each bank and aggregate all profit income in your return. Banks also submit this data to FBR electronically, so the figures must match between your return and FBR's records.

Prize Bond Winnings — Section 156

Prize bonds are a popular savings and investment instrument issued by the State Bank of Pakistan through the National Savings organization. Prize bond holders participate in periodic prize draws and may win prizes ranging from small amounts to first prizes of several million rupees. These winnings are taxable in Pakistan under Section 156 of the Income Tax Ordinance.

When a prize bond winner presents the winning bond to National Savings or an authorized bank for encashment, the paying entity deducts WHT under Section 156 before releasing the prize money:

Key points for prize bond winners regarding tax compliance:

• WHT is deducted at source: National Savings or the authorized bank encashing the bond deducts the WHT before paying the net prize amount. The winner receives the prize minus WHT, and a payment certificate or voucher is issued showing the gross prize, WHT rate, and net amount paid
• Final tax for individuals: Section 156 WHT is a final tax for individual prize bond holders. Once 15% or 25% is deducted, no further income tax is due on the prize amount under normal slab rates
• Declare in return: Despite the final-tax nature, include the prize amount in your return under “Other Sources — Prize Bond Winnings.” Show the WHT as final tax paid. This prevents wealth reconciliation discrepancies
• Wealth statement impact: Encashing a prize bond means the bond (an asset) is converted to cash (another asset). If you held Rs. 50,000 in prize bonds at the start of the year and encashed a Rs. 500,000 winning prize during the year, your closing assets must reflect the net cash received after WHT, and the prize income must appear in your wealth reconciliation as income received during the year
• Keep SBP payment receipts: Retain the payment voucher or receipt issued by National Savings or the bank as documentary proof of the prize received and WHT deducted

Dividend Income — Section 150 / Section 8

Dividend income received by individual shareholders from Pakistani companies is subject to withholding tax deducted by the distributing company at the time of dividend payment. Section 150 covers dividend WHT for listed and unlisted companies, with the WHT constituting a final tax for most individual shareholders under Section 8 of the Ordinance.

Dividend income is one of the most common categories where taxpayers unknowingly fail to declare income they assume is “already dealt with” by the company's WHT. This is a compliance error with consequences. Every company distributing dividends reports the dividend paid and WHT deducted to FBR. FBR cross-matches this against shareholder returns. If you received Rs. 300,000 in dividends during the year and did not include this in your return, FBR's data matching system will flag the discrepancy. Even though the WHT is final tax and no additional tax is due, the undeclared dividend creates an unexplained source of wealth if your bank balance or assets increased during the year by more than your declared income explains.

The company paying dividends issues a dividend warrant (cheque or bank transfer) along with a WHT certificate or statement showing the gross dividend, the WHT deducted, and the net amount paid. Retain these certificates and use them to populate your return accurately.

Royalty Income — How It’s Taxed

Royalty income occupies a different position from bank profit and prize bonds in terms of tax treatment — it is taxed at normal income tax slab rates rather than at a fixed final-tax rate. This distinction is important for anyone receiving royalty income, particularly authors, software developers, patent holders, and businesses that license intellectual property.

In Pakistan's tax law, royalty means a payment for the use of, or the right to use, intellectual property — including copyrights, patents, trademarks, trade names, industrial designs, formulas, processes, software (including source code and object code), technical know-how, secret processes, and franchise arrangements. The key characteristic is that a royalty payment arises from the licensing or granting of rights in intangible property, not from the outright sale of that property (which would be a capital gain).

Royalty income received by an individual in Pakistan is included in the individual's total income and taxed at the applicable normal income tax slab rates — ranging from 0% on income up to Rs. 600,000 to 35% on income above Rs. 4,100,000 for tax year 2026. Royalty income is not subject to a separate flat-rate final tax in the way that bank profit and prize bonds are. The royalty income is declared in your return under the “Other Sources — Royalty” head and combined with your other income to determine your total income and the applicable slab rate.

Foreign Royalties and Double Taxation Treaties: If you receive royalty income from a foreign company or individual for the use of your intellectual property in another country, Pakistan's double taxation treaty (DTT) with that country may limit the withholding tax the foreign country can deduct at source, and may also provide for a credit or exemption in Pakistan on that income. Pakistan has DTTs with numerous countries including the UAE, UK, USA, China, Saudi Arabia, Turkey, and many others. If you receive foreign royalties, declare the gross amount in your Pakistani return under other sources, and claim a credit under Section 103 for any foreign income tax paid, subject to the DTT provisions applicable to your specific situation.

Gifts, Inheritance, and Capital Receipts

Gifts and inheritance are among the most misunderstood items in Pakistan's income tax system. Many taxpayers believe that gifts are inherently exempt from income tax — this is partially correct but requires careful application of the specific rules.

Gifts from relatives: Cash gifts, property transfers, or other benefits received from close relatives — specifically defined as spouse, parents, grandparents, siblings, children, and grandchildren — are generally not taxable as income in the hands of the recipient. However, they must still appear in the wealth statement. If your father gifts you Rs. 2,000,000 in cash, that amount is not income but it increases your assets. Your wealth statement must reflect this increase, and the wealth reconciliation must explain the source of the asset increase as “gift received from parent.” Proper documentation — a gift deed or even a straightforward written statement — protects you if FBR queries the transaction.

Gifts from non-relatives: Cash gifts or property benefits received from persons outside the defined relative circle are treated differently. If they cannot be explained as part of a business transaction or a legitimate non-taxable arrangement, they may be assessed as “other source income” under Section 39. FBR has the power under Section 111 to treat any unexplained increase in wealth or unexplained expenditure as taxable income. Large cash gifts from business associates, clients, friends, or other non-relatives should be documented carefully and their nature should be assessed by a tax consultant before assuming they are non-taxable.

Inheritance: Property or assets received by inheritance are not taxable as income at the time of inheritance — Pakistan does not have an estate duty or inheritance tax. However, inherited assets must be declared in the heir's wealth statement upon receipt. When an inherited asset is subsequently sold, the capital gain (if any) on that sale may be taxable depending on the type of asset and the applicable capital gains tax provisions.

Miscellaneous Other Income — What FBR Expects You to Declare

Beyond the major categories discussed above, several other types of receipts fall into the other-source income category and must be declared in your return. FBR's data matching capabilities have grown significantly in recent years, and many of these income types are now cross-reported by third-party entities. Failure to declare them creates increasingly detectable discrepancies.

• Compensation for loss of employment: Amounts received above the exempt threshold upon termination, retrenchment, or voluntary separation are taxable. Golden handshake payments above the prescribed limit are partially taxable as other-source income in the year received
• Insurance payouts not otherwise exempt: General insurance claim settlements that represent compensation for taxable lost income (as opposed to compensation for capital assets) may be taxable. Life insurance maturity proceeds from non-exempt policies have specific treatment — consult a tax advisor for your specific policy structure
• Director’s fees: Fees paid to individuals for attending board meetings of companies, where the individual is not an employee receiving a salary, are other-source income taxed at normal slab rates. The company may deduct WHT at source; this WHT is an advance tax (not final tax) against the individual’s total income tax liability
• Income from sub-letting: If you are a tenant who sub-lets a portion of the rented premises to another party, the sub-letting income is generally other-source income (since you do not own the property, it falls outside the property income head). Declare under other sources at normal slab rates
• Foreign-source income received in Pakistan: A Pakistani resident’s worldwide income is taxable in Pakistan. Foreign-source income received in Pakistan (including income remitted from abroad that represents earned income, consulting fees, or any other taxable receipt rather than a family transfer) must be declared. Double taxation treaty relief may reduce the Pakistani tax liability
• Gambling or lottery winnings: Where legally received, prize winnings from legal lottery schemes or game show prizes are taxable under Section 156 with WHT deducted at source. Declare under other sources

How to Declare Income from Other Sources in FBR IRIS

Correctly declaring other-source income in your annual return on FBR’s IRIS portal is the practical step that brings all the above rules together. Here is a step-by-step approach for the most common other-source income types:

Step 1: Log in to IRIS. Access iris.fbr.gov.pk using your NTN and IRIS password. Navigate to the current tax year return (Tax Year 2026, covering July 1, 2025 to June 30, 2026). If you have not yet initiated a return for this year, click “Declaration” and then “Income Tax Return” to start a new return.

Step 2: Navigate to the Income tab — Other Sources. Within the return form, find the Income section and locate “Income from Other Sources.” IRIS presents sub-categories for: Bank Profit (Section 7B — Final Tax), Prize Bond Winnings (Section 156 — Final Tax), Dividend (Section 150 — Final Tax), and Other Income (taxable at normal rates, including royalties, director fees, and other miscellaneous items).

Step 3: Enter each income item. For final-tax items (bank profit, prize bonds, dividends), enter the gross income received and the WHT deducted. The system treats these as final-tax income and does not include them in the normal income computation for slab-rate tax. For non-final-tax items (royalties, director fees, sub-letting income, miscellaneous other income), enter the gross amount. These amounts are included in your total income and taxed at your applicable slab rate.

Step 4: Reconcile with your wealth statement. All other-source income declared must be reflected in the wealth statement reconciliation — the income increases your wealth (assets or net worth) during the year. IRIS will prompt you to complete the wealth statement before submission. Ensure that the opening wealth + income (from all sources including other sources) − expenditure = closing wealth. Any unexplained gap between opening and closing wealth is a discrepancy that FBR may query.

Step 5: Verify and submit. Before submission, review all income heads to ensure nothing has been omitted. Common omissions include: bank profit from a rarely-used account, small dividend payments from minority shareholdings, and prize bond winnings from prior-year bonds encashed during the current year. After review, submit the return before the September 30 deadline (or extended deadline). Once submitted, verify your ATL status on FBR’s website to confirm you remain on the Active Taxpayer List.

Frequently Asked Questions