Understanding taxable income in Pakistan is essential for every individual, freelancer, and business owner. Whether you earn through salary, business, or investments, the Federal Board of Revenue (FBR) requires you to declare and pay taxes on income that falls within the taxable threshold.
This article explains what qualifies as taxable income in Pakistan, the minimum taxable income limits for 2025, applicable exemptions, and how to calculate your taxable income properly.
What Is Taxable Income?
Taxable income refers to your total income during a tax year, minus allowable deductions, donations, and exemptions. It includes earnings from multiple sources such as salary, business, property, capital gains, and more.
According to Income Tax Ordinance, 2001, taxable income is the amount on which income tax is levied as per prescribed slabs set by the Government of Pakistan.
Minimum Taxable Income in Pakistan (2025)
For Tax Year 2025, the minimum taxable income threshold is as follows:
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For salaried individuals:
Income up to Rs. 600,000 per year (Rs. 50,000 per month) is exempt from income tax.
Any income above Rs. 600,000 is taxable. -
For business individuals/non-salaried persons (AOPs, freelancers, etc.):
Income up to Rs. 400,000 per year is exempt from tax.
Any income above Rs. 400,000 is subject to taxation.
If your annual income exceeds the above thresholds, you must register with FBR, obtain an NTN, and file your income tax return.
What Types of Income Are Taxable in Pakistan?
FBR categorizes taxable income into five heads, each of which is taxed differently. Here’s a breakdown:
1. Salary Income
Includes:
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Basic salary
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Bonuses
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Commissions
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Leave encashment
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Allowances (with exceptions)
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Employer-provided perquisites (car, accommodation)
Tax is calculated using slabs for salaried individuals, and tax is often deducted at source by the employer.
2. Business or Professional Income
This applies to:
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Sole proprietors
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Freelancers (IT, digital services, consultants)
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Retailers or shop owners
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Traders
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Partners in AOPs (Associations of Persons)
Tax is calculated after deducting allowable business expenses, depreciation, and admissible deductions.
3. Property (Rental) Income
Taxable if you earn income from:
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Residential or commercial rental properties
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Subletting or lease arrangements
Rental income has separate tax slabs, but maintenance and property-related expenses may be deductible.
4. Capital Gains
Income earned through sale or transfer of:
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Immovable property (plots, homes, commercial buildings)
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Shares, mutual funds, or other securities
Capital gains tax (CGT) varies based on:
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Holding period of the asset
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Type of asset
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Current CGT rates issued by FBR
5. Income from Other Sources
Includes:
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Interest on bank deposits
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Prize bonds
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Dividends
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Gifts or windfalls (if not exempt)
These are often subject to withholding tax, and in some cases, final tax regime (FTR) applies.
Exempt and Non-Taxable Income
Not all income is taxable. The following are generally exempt or partially exempt (subject to conditions):
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Agricultural income (under provincial jurisdiction)
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Pension received from government sources
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Foreign remittances through official banking channels
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Zakat and scholarships
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Dividend from mutual funds (up to specific limits)
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Withdrawals from recognized pension schemes
Allowable Deductions from Taxable Income
FBR allows you to reduce your taxable income by claiming:
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Zakat paid
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Charitable donations to approved institutions (Section 61)
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Investment in pension funds (VPS)
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Profit on debt (home loan interest)
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Tuition fee (limited to certain cases)
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Medical allowance (if not reimbursed)
These deductions are declared while filing the income tax return in the deductions and tax credit sections.
How to Calculate Your Taxable Income
Here’s a simple example for a salaried person:
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Total Annual Salary Income: Rs. 1,200,000
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Less: Zakat paid: Rs. 50,000
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Less: Donation to Edhi Foundation: Rs. 50,000
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Taxable Income = Rs. 1,100,000
Apply applicable slab on Rs. 1.1 million to calculate payable tax.
Income Tax Slabs (Indicative)
(Subject to updates by FBR in Finance Bill)
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Rs. 600,000 or less → 0%
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Rs. 600,001 – 1,200,000 → 2.5% on excess
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Rs. 1,200,001 – 2,400,000 → 12.5%
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Rs. 2,400,001 – 3,600,000 → 20%
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Above → Higher rates apply
Do Freelancers and IT Exporters Pay Income Tax?
Yes, but special tax regimes and exemptions apply.
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Exporters of software or IT-enabled services may qualify for reduced tax (0.25% to 1%)
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Must be registered with PSEB and file return annually
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FBR may require declaration of foreign remittances received via bank
Consequences of Not Declaring Taxable Income
If you don’t declare your taxable income:
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FBR may issue notices or penalties
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You may be excluded from ATL
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Higher withholding taxes will apply on property, banking, and vehicle transactions
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You can be selected for audit or legal action
