Tax on Salary Pakistan 2026
Complete Guide for Salaried Persons

If you are a salaried employee in Pakistan, your employer deducts income tax from your monthly pay and deposits it to FBR under Section 149 of the Income Tax Ordinance 2001. But this monthly deduction does not replace your obligation to file an annual return. This guide explains how salary is taxed, which components are tax-free, how the employer calculates monthly deductions, and what you need to do by September 30.

How Salary Tax Works in Pakistan — Section 149

Your employer is a withholding tax compliance under Section 149 of ITO 2001. Every month, the employer:

1. Estimates your total annual taxable salary income
2. Divides the annual tax by 12 to get a monthly deduction amount
3. Deducts that amount from your salary each month
4. Deposits the deducted tax to FBR using a CPR (tax payment challan)
5. Adjusts the deduction if your salary changes mid-year (bonus, increment, allowance change)

At year-end, your employer provides an Annual Salary Certificate showing total gross salary paid and total tax deducted. You use this certificate to file your personal return.

Salary Tax Slabs — Tax Year 2026 (July 2025 – June 2026)

Salary income is taxed on graduated slabs. Each slab rate applies only to the income within that bracket, not to your total income:

Worked Examples: Salary Tax Calculation

Approximate monthly deductions at common salary levels:

Note: These estimates assume total salary is taxable income with no deductions. Medical allowance, VPS contribution, and other items reduce taxable income and lower the actual deduction.

What Counts as Taxable Salary?

Your taxable salary includes all amounts received from your employer, whether cash or in-kind:

• Basic salary
• House rent allowance (HRA) — taxable unless employer provides actual housing
• Conveyance allowance — taxable if paid as cash; employer-provided vehicle treated differently
• Performance bonuses, increments, annual bonus
• Leave encashment paid during service
• Commission and sales incentives
• Any other regular or irregular cash payment from employer

Tax-Free Salary Components

The following salary components are exempt from income tax under the Second Schedule or specific ITO provisions:

Annual Bonus — How It Is Taxed

Your annual bonus is added to your total annual salary and taxed at the applicable slab rate. There is no separate flat rate for bonuses in Pakistan. This means:

• If your bonus pushes your total income into a higher slab, the additional amount above the slab threshold is taxed at the higher rate
• Employers typically estimate the year-end bonus when calculating monthly withholding adjustments in the final quarter
• If bonus was not expected when monthly WHT was calculated, it is added in the month it is paid and the deduction is adjusted accordingly

Multiple Employers — What If You Changed Jobs

If you worked for two employers during Tax Year 2026 (e.g., left one job in December 2025 and joined a new one), both employers calculate WHT independently without knowing about the other’s salary. This frequently causes under-withholding:

• Each employer taxes only their own salary payments — independently
• When you combine both salaries in your annual return, the total may fall in a higher slab
• You may owe additional tax (difference between combined slab rate and what each employer deducted)
• Solution: when starting a new job, inform the new employer of your previous salary so they can adjust their withholding accordingly

Collect an annual salary certificate from both employers when filing your return.

House Loan Profit Deduction — Section 64

If you took a loan to purchase or construct a self-occupied house, the profit (interest) paid on that loan is deductible from your taxable salary income under Section 64 of ITO 2001. Limits:

• Maximum deductible: lower of (a) Rs. 2,000,000 or (b) 50% of your taxable income
• Applies only to self-occupied property — not rental property
• Get an annual profit certificate from your bank showing interest paid on the home loan
• Enter in IRIS under Deductible Allowances → Profit on Mortgage

How to Get Your Salary Certificate

You need the Annual Salary Certificate (or Tax Deduction Statement) to file your return. How to obtain it:

• Contact your HR, payroll, or accounts department and request the “Annual Income Tax Deduction Certificate for Tax Year 2026”
• Most large companies (banks, multinationals, government) issue these automatically by July or August
• Small employers: ask the accounts department — it should show your designation, employer NTN, gross salary paid, and total WHT deducted
• Government employees: Form 16 equivalent is issued by the Drawing and Disbursing Officer (DDO)

Claiming a Salary WHT Refund

If your employer deducted more WHT than your actual tax liability (common when salary is high in early months, then drops; or when mid-year job change happens), you can claim a refund:

• File your return on IRIS, entering gross salary and WHT from the salary certificate
• Also declare any deductions (Zakat, VPS, home loan interest)
• IRIS calculates your actual tax liability
• If WHT > actual liability: FBR issues a refund to your bank account within 2–4 months

Many salaried employees with medical allowances, VPS contributions, or home loan deductions are entitled to refunds but never claim them because they assume employer WHT is final.

Why File Your Return Even With Zero Additional Tax

Even if your employer perfectly deducted your salary tax and you have no other income, you still need to file:

• Staying on the Active Taxpayer List (ATL) (ATL) requires an annual filed return
• Without ATL status: bank profit WHT jumps from 15% to 30%, property WHT from 3% to 6%
• wealth statement preparation must be updated annually (FBR expects declaration of all assets)
• Any other income (bank profit, rental, capital gains) must be declared
• Embassy visa applications require 3 years of filed return acknowledgments

Frequently Asked Questions