Introduction
Income tax is the backbone of any nation’s fiscal structure, and in Pakistan, it plays a crucial role in financing public infrastructure, social welfare, education, and national security. For individuals, businesses, and professionals alike, understanding the ins and outs of income tax is essential—not just for compliance, but also for smart financial planning.
This comprehensive guide explores everything you need to know about income tax in Pakistan for 2025, including who pays it, how it’s calculated, applicable rates, filing requirements, deductions, penalties, and best practices for staying compliant.
1. What Is Income Tax?
Income tax is a direct tax levied on the earnings or profits of individuals and entities. In Pakistan, it is administered under the Income Tax Ordinance, 2001 and enforced by the Federal Board of Revenue (FBR).
Types of Income Taxpayers:
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Individuals (salaried, self-employed, freelancers)
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Businesses (sole proprietorships, partnerships, companies)
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AOPs (Associations of Persons)
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Non-resident Pakistanis (NRPs) earning income in Pakistan
2. Types of Taxable Income in Pakistan
As per Section 11 of the Income Tax Ordinance, income is taxed under the following heads:
| Head of Income | Examples |
|---|---|
| Salary | Income from employment, bonuses, allowances |
| Business/Profession | Income from sole proprietorships, consultancies |
| Property | Rent from real estate |
| Capital Gains | Profit from sale of shares, property, or securities |
| Other Sources | Dividends, interest, royalties, prize bonds |
3. Income Tax Rates for 2025
A. Salaried Individuals
| Annual Taxable Income (PKR) | Tax Rate |
|---|---|
| Up to 600,000 | 0% |
| 600,001 – 1,200,000 | 2.5% of amount exceeding 600,000 |
| 1,200,001 – 2,400,000 | Rs. 15,000 + 12.5% of excess |
| 2,400,001 – 3,600,000 | Rs. 165,000 + 20% of excess |
| 3,600,001 – 6,000,000 | Rs. 405,000 + 25% of excess |
| Above 6,000,000 | Rs. 1,005,000 + 35% of excess |
B. Business Individuals and AOPs
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Same slab rates as salaried individuals, unless income is exclusively from business.
C. Companies (Corporate Tax)
| Type | Tax Rate |
|---|---|
| Public/Private Companies | 29% |
| Banking Companies | 39% |
| Small Companies | 20% (conditions apply) |
4. Resident vs. Non-Resident Taxation
Resident:
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Taxed on worldwide income
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Must reside in Pakistan for 183 days or more during the tax year
Non-Resident:
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Taxed only on Pakistan-sourced income
5. Withholding Tax (WHT)
Pakistan uses a withholding tax system where taxes are deducted at source.
| Nature of Payment | Section | WHT Rate (ATL) | WHT Rate (Non-ATL) |
|---|---|---|---|
| Salaries | 149 | As per slab | N/A |
| Contracts | 153(1)(a) | 4% | 6% |
| Services | 153(1)(b) | 8% | 12% |
| Imports | 148 | 2%-6% | Higher for non-filers |
| Property Rent | 155 | 10% | 15% |
| Bank Withdrawals | 231A | 0.6% | For non-filers only |
6. How to Calculate Taxable Income
Formula:
Gross Income – Allowable Deductions = Taxable Income
Allowable Deductions May Include:
| Expense Type | Applicable Section | Notes |
|---|---|---|
| Zakat | 60 | 100% deductible if paid to approved funds |
| Charitable Donations | 61 | Up to 30% of taxable income |
| Pension Contributions | 63 | Up to 20% of taxable income |
| Investment in Shares | 62 | Max Rs. 2M or 15% of income |
| Education Expenses | 64A | Up to 5% of income or Rs. 60,000/child |
7. Key Documents Required for Income Tax Filing
✅ CNIC and contact details
✅ Bank statements
✅ Salary certificate (if salaried)
✅ Business income records (P&L, invoices)
✅ Rent agreements and receipts
✅ Property sale/purchase documentation
✅ Tax deduction certificates (CPRs)
✅ Wealth statement and reconciliation
8. FBR’s IRIS Portal: Filing Your Tax Return
Step-by-Step Guide:
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Create an account at https://iris.fbr.gov.pk
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Register your NTN (National Tax Number)
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Choose the correct tax year
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Declare income under correct heads
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Attach CPRs (Computerized Payment Receipts)
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Submit wealth statement
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File and receive Acknowledgement Number
9. Important Tax Filing Deadlines
| Filing Type | Due Date |
|---|---|
| Individual Returns | September 30, 2025 |
| Corporate Returns | December 31, 2025 |
| ATL Update | Same as return submission |
| Monthly WHT Statements | 15th of every month |
| Monthly Sales Tax Returns | 18th of every month |
Tip: Filing on time keeps you on the Active Taxpayer List (ATL).
10. Benefits of Being on the ATL
| Benefit | Explanation |
|---|---|
| Lower withholding taxes | Pay less WHT on contracts, property, etc. |
| Eligibility for refunds | File for refunds on excess tax paid |
| Credibility with banks | Banks prefer ATL customers |
| Ease of business compliance | Required for tendering, vendor registration |
11. Common Income Tax Mistakes to Avoid
❌ Not filing on time
❌ Misreporting business expenses
❌ Not reconciling bank statements
❌ Missing CPRs for taxes paid
❌ Ignoring wealth statement filing
Solution: Always work with a professional accountant or firm like Sterling.pk to ensure full compliance.
12. Income Tax for Freelancers and Consultants
Freelancers are taxable under business income, even if income is received through platforms like Fiverr, Upwork, or Payoneer.
Musts for Freelancers:
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Register with FBR and get NTN
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Declare income under “Income from Business”
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File return annually via IRIS
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Declare foreign remittances received in PKR
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Keep bank trail for receipts
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File wealth statement
13. Income Tax for E-Commerce and Digital Sellers
Who Is Covered?
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Online stores (Shopify, Daraz, WooCommerce)
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Facebook/Instagram sellers
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Amazon and eBay sellers
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Dropshipping businesses
Tax Requirements:
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Register business and obtain STRN if applicable
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Declare gross sales, expenses, and profit
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File monthly and annual returns
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Maintain inventory and income documentation
14. Corporate Tax Compliance in Pakistan
Companies must:
✅ File audited financial statements (if applicable)
✅ Deduct and deposit WHT for vendors, employees
✅ Submit withholding statements monthly/annually
✅ File income tax return by December 31
✅ Reconcile with sales tax, payroll, and bank accounts
Note: Companies must maintain books of accounts under Section 174 of the Ordinance.
15. Audit Risk and Selection
FBR may select tax filers for audit under:
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Section 177 (discretionary audit)
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Section 214C (random selection via ballot)
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Section 122(5A) (amendment of assessment)
Avoid Audit by:
✅ Filing accurate and complete returns
✅ Maintaining all supporting documents
✅ Reconciling with FBR’s CPR and withholding data
16. Refunds and Tax Credits
Refundable Situations:
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Tax deducted is more than actual liability
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Duplicate withholding on imports/services
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Advance tax paid exceeds actual liability
Claiming Refunds:
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File refund request via IRIS
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Attach CPRs and supporting evidence
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Refunds are verified and processed after audit (in some cases)
17. Penalties for Non-Compliance
| Offense | Penalty |
|---|---|
| Failure to file return | Rs. 1,000/day; min Rs. 10,000 (individuals) |
| Misreporting or concealment | Up to 100% of tax evaded |
| Not appearing on ATL | Double WHT rates, refund ineligibility |
| False statement in wealth filing | Rs. 25,000 to Rs. 100,000 |
18. Role of a Tax Consultant or Accountant
Why You Need a Tax Professional:
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Ensure accurate classification of income
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Maximize deductions and minimize liability
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Avoid errors that trigger audit
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Save time and penalties
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Keep you up to date on law changes
Sterling.pk offers dedicated tax compliance services for individuals, startups, SMEs, and large enterprises.
19. Frequently Asked Questions (FAQs)
Q1: Do I have to file income tax if my employer already deducted it?
Yes. Filing is mandatory if your income exceeds Rs. 600,000/year.
Q2: Is rental income taxable?
Yes, under the “Income from Property” head. It is subject to slab-based taxation with 1/5th deductible allowance.
Q3: Can I file return without NTN?
No. Registering for NTN via IRIS is the first step.
Q4: Are donations tax-deductible?
Yes, donations to approved organizations under Section 61 are deductible.
Q5: What happens if I miss the tax deadline?
Late filing results in penalties, and you are removed from ATL.
20. How Sterling.pk Helps You with Income Tax
At Sterling.pk, we offer:
✅ NTN and IRIS registration
✅ Return filing for salaried, business, and corporate clients
✅ Wealth statement preparation
✅ Withholding tax reconciliation
✅ Tax audit representation
✅ Tax planning and advisory
Let us ensure you remain compliant, optimized, and audit-ready—year after year.
Conclusion
Understanding the ins and outs of income tax in Pakistan is vital for individuals and businesses alike. With clear laws, defined slabs, and online filing systems like IRIS, the process is easier than ever—if managed properly.
By staying informed and working with professionals like Sterling.pk, you can meet your tax obligations, reduce your liabilities legally, and contribute to Pakistan’s economic progress with confidence.
