Understanding how taxes are calculated in Pakistan is essential for both salaried individuals and business owners. Whether you’re an employee, self-employed, or running a business, knowing how to accurately calculate your tax liability can help you save money and avoid penalties.
This step-by-step guide will break down the tax calculation process in Pakistan, covering income tax calculator slabs, deductions, tax credits, and filing procedures. By the end of this guide, you’ll be able to calculate your taxes like a pro!
Step 1: Determine Your Taxable Income
What is Taxable Income?
Your taxable income is the amount of money on which you are required to pay tax. It includes:
✔ Salary or wages
✔ Business or self-employment income
✔ Rental income
✔ Capital gains on investments (e.g., stocks, real estate)
✔ Interest earned on bank deposits
Income That is Exempt from Tax
Certain types of income may be fully or partially exempt from tax, including:
✔ Agricultural income (as per Article 41 of the Constitution)
✔ Certain pension and retirement benefits
✔ Foreign remittances sent by overseas Pakistanis
✔ Scholarships and education-related grants
Click here to read more: https://calculatetax.pk/
Step 2: Apply Tax Deductions and Allowances
Pakistan’s tax laws allow for various deductions that reduce your taxable income, including:
✔ Zakat contributions (fully deductible)
✔ Provident fund contributions
✔ Donations to government-approved charities
✔ Investment in approved pension schemes
Example Calculation:
If your total income is PKR 1,000,000 and you donate PKR 50,000 to a tax-exempt charity, your new taxable income is:
PKR 1,000,000 – PKR 50,000 = PKR 950,000
💡 Tip: Keep records of all donations and contributions to claim deductions while filing taxes!
Step 3: Understand Pakistan’s Income Tax Slabs (FY 2023-24)
Pakistan follows a progressive tax system, meaning higher incomes are taxed at higher rates. Here’s the latest tax slab for salaried individuals (as per the FBR 2023-24):
| Annual Taxable Income (PKR) | Tax Rate |
|---|---|
| Up to 600,000 | 0% (Tax-Free) |
| 600,001 – 1,200,000 | 2.5% on amount above 600,000 |
| 1,200,001 – 2,400,000 | 12,000 + 12.5% on amount above 1,200,000 |
| 2,400,001 – 3,600,000 | 162,000 + 20% on amount above 2,400,000 |
| 3,600,001 – 6,000,000 | 402,000 + 25% on amount above 3,600,000 |
| 6,000,001 – 12,000,000 | 1,002,000 + 32.5% on amount above 6,000,000 |
| Above 12,000,000 | 2,952,000 + 35% on amount above 12,000,000 |
💡 Tip: Salaried individuals with an annual income below PKR 600,000 are exempt from tax.
Step 4: Calculate Your Tax Liability
Example Calculation for Salaried Individuals
Let’s assume your taxable income after deductions is PKR 2,000,000.
Using the tax slabs:
- First PKR 600,000 = 0% tax
- Next PKR 600,000 (600,001 – 1,200,000) → 2.5% tax = PKR 15,000
- Remaining PKR 800,000 (1,200,001 – 2,000,000) → 12.5% tax = PKR 100,000
Total tax payable = PKR 15,000 + PKR 100,000 = PKR 115,000
💡 Tip: If your employer deducts Withholding Tax (WHT) from your salary, you can adjust it while filing your tax return.
Step 5: Apply Tax Credits
Tax credits reduce your final tax bill. In Pakistan, some common tax credits include:
✔ Investment in Mutual Funds & Pension Funds (up to 20% of taxable income)
✔ Education expenses (for dependents)
✔ Tax credits for disabled persons
Example of Tax Credit Application
If your tax due is PKR 115,000 and you qualify for a PKR 15,000 tax credit, your final tax payable is:
PKR 115,000 – PKR 15,000 = PKR 100,000
Step 6: Check for Advance & Withholding Taxes
In Pakistan, various transactions include advance and withholding taxes, which can be adjusted when filing tax returns:
✔ Mobile bills and internet usage – 15% withholding tax
✔ Bank withdrawals (for non-filers) – 0.6% tax
✔ Property transactions – Variable withholding tax rates
💡 Tip: If you are a tax filer, you can claim refunds for excess taxes deducted at source.
Step 7: File Your Tax Return with FBR
How to File Your Taxes in Pakistan?
- Register for an NTN (National Tax Number) at FBR’s IRIS portal (iris.fbr.gov.pk)
- Login and fill out the tax return form (mentioning income, deductions, and tax credits)
- Upload supporting documents (salary slips, donation receipts, investment proofs)
- Submit your return before the due date (usually September 30 for individuals)
- Pay any outstanding tax via bank or online transfer
💡 Tip: Filing your tax return before the deadline keeps you in the Active Taxpayer List (ATL), reducing withholding tax rates on various transactions.
Conclusion
Calculating tax in Pakistan may seem complex, but by following this step-by-step guide, you can accurately determine your tax liability, apply deductions, and claim tax credits.
💡 Key Takeaways:
✔ Identify your taxable income from salary, business, or investments
✔ Apply deductions like Zakat and pension fund contributions
✔ Use tax slabs to determine your payable tax
✔ Claim tax credits to reduce your final tax bill
✔ File your return on time to avoid penalties and enjoy tax benefits
By staying informed and filing your taxes correctly, you can avoid overpaying and stay compliant with Pakistan’s tax laws!
FAQs
1. Who needs to file a tax return in Pakistan?
Anyone earning above PKR 600,000 per year (salaried) or PKR 400,000 per year (business income) must file a tax return.
2. How can I check if my employer is deducting the correct tax?
You can review your salary slip or use the FBR online tax calculator.
3. What happens if I don’t file my tax return?
Non-filers face penalties, higher withholding taxes, and exclusion from the ATL (Active Taxpayer List).
4. Can I get a tax refund in Pakistan?
Yes! If you overpaid tax (e.g., withholding tax on bank transactions), you can claim a refund from FBR.
5. What is the tax rate for non-filers?
Non-filers pay higher withholding taxes on property transactions, banking, and vehicle registration.
