Tax on salary in Pakistan: how the deduction works, and why you still file

Salary is charged under section 12 of the Income Tax Ordinance 2001 and deducted at source by your employer under section 149, which requires the deduction to be computed on your estimated annual salary at your average rate rather than by applying a slab rate month by month. Deduction at source is not filing: a salaried individual still has to file a return, due on or before 30 September under section 118(3)(a), and it is a return rather than a statement.

This page covers what counts as salary, how the employer is required to compute the deduction, why you still file even when nothing is owed, and the change this year that is worth real money to high earners. If you want the arithmetic done rather than the rules explained, use our salary tax calculator, and if you want the return filed, that is our income tax filing service.

What counts as salary

Section 12 of the Income Tax Ordinance 2001 charges any salary received by an employee in a tax year under the head "Salary". Subsection (2) then defines salary as any amount received by an employee from any employment, whether of a revenue or capital nature, and lists what is included:

• any pay, wages or other remuneration, including leave pay, payment in lieu of leave, overtime payment, bonus, commission, fees, gratuity, or work condition supplements such as payments for unpleasant or dangerous working conditions;
• any perquisite, whether convertible to money or not; and
• the amount of any allowance provided by an employer, including a cost of living, subsistence, rent, utilities, education, entertainment or travel allowance, but not an allowance solely expended in the performance of the employee's duties of employment.

That final exception is narrower than most people think, and section 12 says so explicitly. An Explanation to the clause clarifies that an allowance paid on a monthly fixed basis, or as a percentage of salary, is not an allowance solely expended in the performance of duty. So a fixed monthly conveyance or entertainment allowance is taxable salary, regardless of what it is called on the payslip. Genuine reimbursement of actual expenditure incurred on the job is a different thing from a round monthly figure with a label on it.

Note also the phrase "whether of a revenue or capital nature" in the opening words. Payments that feel like one off capital events, including many termination and settlement payments, are within the head unless a specific provision takes them out.

How your employer is supposed to compute the deduction

Section 149 is the deduction at source provision, and it is far more demanding of employers than most payroll departments treat it as being. It requires every person responsible for paying salary to deduct tax at the time of payment, at the employee's average rate of tax, computed at the rates in Division I of Part I of the First Schedule on the estimated income of the employee under the head "Salary" for the tax year.

Three features of that formula are worth understanding, because each is a common source of error:

1. Average rate, not marginal rate. The deduction is meant to spread your annual liability evenly across the year, not to apply your top slab rate to each payment. A payroll system applying the marginal rate to a bonus month will over deduct.
2. Estimated annual income, not this month multiplied by twelve. The employer is estimating the full year. When a mid year raise or a large bonus lands, the estimate should be revised and the remaining months adjusted, rather than the whole correction falling in June.
3. Adjustments are allowed, and required. Section 149 requires the employer to deduct after making adjustment of tax withheld from the employee under other heads, and of tax credits admissible under section 61 (charitable donations) and section 63 (contributions to an approved pension fund), during the tax year, after obtaining documentary evidence. It also expressly requires adjustment for tax withheld from the employee during the year, for any excess deduction or deficiency arising out of a previous deduction, and for a failure to deduct during the year.

Section 149 also carries a separate obligation, in subsection (1A), to deduct on pension income above ten million rupees paid to a former employee below the age of seventy.

The surcharge change that matters to high earners

Section 4AB imposes a surcharge on top of slab tax, and it was rewritten this year in a way that is worth real money.

The section provides that a surcharge shall be payable by every individual and association of persons at ten percent of the income tax imposed under Division I of Part I of the First Schedule where taxable income exceeds ten million rupees. The base is the tax, not the income.

The Finance Act 2025 had added a proviso setting a lower surcharge rate for individuals deriving income under the head "Salary". The Finance Act 2026 substituted that wording so that the proviso now reads that in the case of an individual deriving income chargeable under the head "Salary", no surcharge shall be payable. FBR's consolidated Ordinance records the substitution in the footnote to the section.

So from tax year 2027 a salaried individual pays no section 4AB surcharge at all, while a non salaried individual or an association of persons above ten million rupees still pays ten percent of their slab tax on top. Section 149 still cross refers to section 4AB when describing the employer's computation, but for an employee deriving salary the reference is now largely inert.

This makes the salaried classification question more valuable than it has ever been. Which of the two tables in Division I applies to you turns on whether your salary exceeds seventy five percent of taxable income, and we work through that test in the income tax slabs guide.

Why you still have to file

Here is the most common misconception on this page. Deduction at source is not filing, and it never has been.

The filing obligation is in section 114(1)(ab): every person other than a company whose taxable income for the year exceeds the maximum amount that is not chargeable to tax must furnish a return. The threshold is not a number written into section 114. It is the ceiling of the zero percent band in Division I of Part I of the First Schedule, which means it moves whenever the slab table is amended.

Section 114(1)(b) then adds triggers that have nothing to do with income at all. You must file if you:

• own immovable property with a land area of five hundred square yards or more, or any flat, in an area within the former municipal limits, a Cantonment, or the Islamabad Capital Territory;
• own immovable property of five hundred square yards or more located in a rating area;
• own a flat with a covered area of two thousand square feet or more in a rating area;
• own a motor vehicle with engine capacity above 1000 CC;
• have obtained a National Tax Number; or
• hold a commercial or industrial electricity connection where the annual bill exceeds five hundred thousand rupees.

Note the National Tax Number trigger in particular. Once you have an NTN, the filing obligation follows from holding it, irrespective of income. Section 115(3) provides a narrow relief: a widow, an orphan below the age of twenty five, a disabled person, and a non resident person are not required to file solely by reason of the property and vehicle triggers.

It is a return, not a statement

If you have been told that salaried people file a simplified "statement" rather than a return, that guidance is over a decade out of date and it is worth correcting because it affects what you actually submit.

Section 115 is headed "Persons not required to furnish a return of income". Section 115(1), which treated the employer's annual statement of deduction as the employee's return, was omitted by the Finance Act 2013. Section 115(4), the statement for persons whose income was entirely subject to final tax, was omitted by the Finance Act 2020. Consequentially the references to an employer's certificate and to a section 115(4) statement were struck out of section 118. What survives in section 115 is essentially the narrow carve out in subsection (3).

Salaried individuals therefore file a full return of income under section 114, electronically, together with a wealth statement under section 116.

The deadline

The due date is in section 118(3)(a): a return required to be filed through the e portal in the case of a salaried individual is due on or before 30 September next following the end of the tax year. The date replaced 31 August by way of the Finance Act 2019.

Missing it is considerably more expensive than it used to be, because getting back onto the Active Taxpayer List now costs an individual twenty five thousand rupees under section 182A, against one thousand rupees before the Finance Act 2026. The full arithmetic is in what late filing actually costs, and the consequences of being off the list are in the Active Taxpayer List explained.

What to check on your own payslip this month

1. Confirm the deduction is being computed on an estimated annual figure at your average rate, not by applying a slab rate to the month.
2. If you received a raise or a bonus mid year, check the estimate was revised rather than the correction being deferred to the final months.
3. Give payroll the documentary evidence for any section 61 or section 63 credits so they are reflected now rather than reclaimed later.
4. If you have non salary income, run the seventy five percent test, because it decides which slab table applies and now also decides whether the section 4AB surcharge touches you.
5. File by 30 September regardless of whether anything further is owed.

Last verified: 22 August 2026. Primary sources read directly for this page: the Income Tax Ordinance 2001 as consolidated by the Federal Board of Revenue and stated to be amended up to 30 June 2026, specifically section 12(1) and 12(2) including the Explanation to clause (c); section 149(1) and (1A) including the adjustments for tax withheld under other heads and tax credits under sections 61 and 63; section 4AB together with the footnote recording the substitution of its proviso by the Finance Act 2026; section 114(1)(ab) and 114(1)(b); section 115 together with the footnotes recording the omission of subsection (1) by the Finance Act 2013 and subsection (4) by the Finance Act 2020, and the carve out in subsection (3); section 116; section 118(3)(a); section 182A; and Division I of Part I of the First Schedule including the seventy five percent salaried individual test. Slab figures are deliberately not reproduced on this page and are being verified separately. General information, not tax advice. Confirm your own position with your tax consultant.