Salary Tax in Pakistan: How Your Monthly Income Tax Is Calculated
If you are a salaried employee in Pakistan, your employer withholds income tax from your salary every month and deposits it with the tax authority. The figure on your salary slip is not a fixed percentage of your pay — it comes from a slab table that the Finance Act can change each year. This guide explains the mechanism, shows the current table, and gives you a way to check that your employer's number is right.
The tax year runs July to June
Pakistan's tax year starts on 1 July and ends on 30 June. Tax year 2027 (also written FY 2026–27) covers July 2026 to June 2027. Rates for salary are set in the annual Finance Act, so a guide or a calculator written for an earlier year can give a wrong answer — always check which tax year the table belongs to.
Step 1: work out your taxable salary
Taxable salary is your annual gross salary minus the amounts the law exempts. There is no flat standard deduction that every employee can claim, so the exemptions that apply depend on your package:
- Medical treatment or hospitalisation reimbursed by the employer is generally exempt.
- Where no medical facility is provided, a medical allowance up to 10% of basic salary is commonly treated as exempt.
- Employer contributions to a recognised provident fund and certain other allowances follow their own rules.
- The rest of your salary — basic pay, house rent, utilities, bonus and most other allowances — belongs in the taxable figure.
Step 2: apply the slabs, which are marginal
This is the mistake almost everyone makes. The slabs are marginal: if your income crosses into a higher band, only the income above that band's starting point is taxed at the higher rate — not your entire salary. Each band therefore has a fixed base amount of tax plus a percentage of the amount above the band's lower limit.
| Annual taxable income (Rs) | Tax |
|---|---|
| Up to 600,000 | No tax |
| 600,001 – 1,200,000 | 1% of the amount above 600,000 |
| 1,200,001 – 2,200,000 | 6,000 + 11% of the amount above 1,200,000 |
| 2,200,001 – 3,200,000 | 116,000 + 20% of the amount above 2,200,000 |
| 3,200,001 – 4,100,000 | 316,000 + 25% of the amount above 3,200,000 |
| 4,100,001 – 5,600,000 | 541,000 + 29% of the amount above 4,100,000 |
| 5,600,001 – 7,000,000 | 976,000 + 32% of the amount above 5,600,000 |
| Above 7,000,000 | 1,424,000 + 35% of the amount above 7,000,000 |
Surcharge: what changed this year
For tax year 2026 (FY 2025–26) there was a 9% surcharge on the tax payable of salaried individuals whose annual taxable income exceeded Rs 10 million. That surcharge was removed for salary income from 1 July 2026. Note what a surcharge is: a percentage of the tax you owe, not a rate applied to the salary above the threshold.
Step 3: your employer withholds it monthly
Your employer is required to deduct the tax month by month and deposit it, which is why you never see a single large bill at the end of the year. Your take-home pay is therefore:
Gross monthly salary − monthly income tax − other lawful deductions such as provident fund contributions, EOBI and loan instalments.
A worked example
Take a monthly salary of Rs 200,000 and assume the whole amount is taxable, so the annual taxable salary is Rs 2,400,000.
- Rs 2,400,000 falls in the band 2,200,001 – 3,200,000.
- Tax = 116,000 + 20% of (2,400,000 − 2,200,000).
- Tax = 116,000 + 40,000 = Rs 156,000 for the year.
- Monthly withholding = 156,000 ÷ 12 = about Rs 13,000 per month.
The same logic works for any salary: find your band, take its base tax, add the percentage on the amount above the band's lower limit, then divide by twelve.
Open the free salary tax calculator →Items that can reduce your tax
- Zakat paid is a straight deduction from taxable income, subject to the applicable rules.
- Donations to approved organisations may qualify for a tax credit, with conditions and limits.
- Medical reimbursement or allowance as explained above.
- Ordinary personal expenses — groceries, rent you pay yourself, utility bills — are not deductible, so do not expect a reduction from them.
Filer status matters beyond your salary
Being on the active taxpayer list changes more than your salary tax. Non-filers face higher withholding rates on many banking, vehicle and property transactions, and a filed return gives you the tax certificate that banks, universities and visa applications often ask for. If your employer already deducts tax, filing a return is still worth doing so the deduction becomes an official record.
How to check your employer's figure
- Take your annual taxable salary — the figure after the exemptions above, not the total package.
- Find your band in the table and calculate the tax, or use the salary tax calculator.
- Compare one twelfth of that with the income tax shown on your salary slip.
- A small difference is normal, because allowances and exemptions change during the year. A large difference usually means the taxable salary or the exemptions have been applied wrongly, and it is worth asking payroll to explain.
Sources
- Federal Board of Revenue — Finance Act (annual rates)
- FBR — withholding tax rate cards
- PwC — Pakistan individual deductions and exemptions
This guide is general information, not tax advice. Rates change with each Finance Act, and the reader is responsible for confirming the current law with the FBR or a qualified professional.