Most salaried people in Pakistan never see the tax leave their account - it is gone before the salary is paid. But understanding how it is calculated tells you whether your payslip is right, how much you can legally reduce it, and what your real take-home pay is. This guide explains the deduction mechanism, the allowances and credits available, and shows worked take-home figures. For the full rate card see our complete income tax guide for 2026-27, and get an instant figure from our salary tax calculator.
How salary tax is deducted (section 149)
Your employer is a withholding agent. Under section 149 of the Income Tax Ordinance 2001, each month the employer estimates your total annual chargeable salary, works out the tax due on it using the current slabs, divides that by twelve, and deducts that amount from your monthly pay. The tax is then deposited with the FBR - typically by the 15th of the following month - and reported in withholding statements filed under section 165. Employers must retain payroll records, challans and salary certificates for six years under section 174.
The figure withheld is only an estimate of your liability. If your income, allowances or eligible credits change during the year, the final position is settled when you file your annual return - which is why filing matters even when tax has already been deducted.
What counts as taxable salary - and what is exempt
"Salary" for tax is broad: basic pay, allowances, bonuses, commissions, and the value of most perquisites and benefits. However, several components are exempt or partly exempt, so they should be excluded before the tax is calculated:
| Component | Tax treatment |
|---|---|
| Medical allowance | Exempt up to 10% of basic salary, where no free treatment or reimbursement is provided |
| Gratuity (approved fund) | Exempt within statutory limits |
| Recognised provident fund | Employer contribution and accrued interest exempt within prescribed limits |
| Basic pay, bonus, commission | Fully taxable as salary |
| House rent & utility allowances | Fully taxable |
Exemption limits and conditions change with each Finance Act and depend on how your fund is structured. Treat the figures above as the typical position and confirm the exact limits for your case with a tax adviser.
Deductions and tax credits that cut your bill
Pakistan's law splits reliefs into two types. Deductible allowances reduce your taxable income before tax is worked out. Tax credits reduce the tax payable directly. The main ones available to salaried individuals:
| Relief | Section | Type & cap |
|---|---|---|
| Zakat paid under the Zakat Ordinance | 60 | Deductible allowance |
| Profit on a house loan (construction or purchase) | 60C | Deductible allowance - lower of 50% of taxable income or PKR 2,000,000 |
| Charitable donations to approved bodies | 61 | Tax credit - donation capped as a share of taxable income |
| Contribution to an approved pension fund | 63 | Tax credit - subject to a percentage-of-income cap |
These reliefs are not applied automatically by every employer, so keep receipts (donation certificates, pension fund statements, bank profit certificates) and claim them in your return. The caps are revised periodically, so verify the current limits before you rely on a figure.
Worked take-home pay examples (2026-27)
Here is the annual and monthly income tax at four common salary levels under the 2026-27 slabs, and the resulting take-home before any provident fund or EOBI deduction:
| Gross salary (monthly / annual) | Annual tax | Monthly tax | Monthly take-home |
|---|---|---|---|
| 100,000 / 1,200,000 | 6,000 | 500 | 99,500 |
| 200,000 / 2,400,000 | 162,000 | 13,500 | 186,500 |
| 300,000 / 3,600,000 | 466,000 | 38,833 | 261,167 |
| 500,000 / 6,000,000 | 1,281,000 | 106,750 | 393,250 |
Note how take-home rises steadily even as the tax rate climbs - Pakistan's system is progressive, so only the slice of income inside each band is taxed at that band's rate, never your whole salary. The chart makes the pattern clear:
The slabs in brief
Take-home depends entirely on the slab rates. For 2026-27, annual salary up to PKR 600,000 is exempt; above that, progressive rates run from 1% to a top marginal rate of 35% on income over PKR 4.1 million. Only income within each band is taxed at that band's rate. The complete band-by-band table sits in our dedicated income tax slabs 2026-27 guide - bookmark it alongside the calculator to check any figure on your payslip.
Legally reducing your salary tax
Beyond the exempt allowances, three moves genuinely lower a salaried person's tax the right way: contributing to an approved pension fund for the section 63 credit, documenting charitable donations for the section 61 credit, and claiming the profit-on-debt allowance if you carry a house-construction loan. Just as important is your filer status - staying on the Active Taxpayers List avoids the higher withholding non-filers pay on cash withdrawals, property and vehicle transactions. See our filer vs non-filer guide for the gap, and if you have not filed, our IRIS return filing walkthrough covers the salaried process step by step.
Frequently asked questions
How is tax on salary deducted in Pakistan?
Under section 149, your employer estimates your annual tax, divides it by 12, and withholds that amount each month, depositing it with the FBR by the 15th of the following month and reporting it in the annual statement.
Which salary allowances are tax-exempt?
Medical allowance up to 10% of basic salary (where no free treatment is provided), approved gratuity, and recognised provident fund contributions and interest, all within statutory limits.
What deductions and credits reduce salary tax?
Zakat and house-loan profit (section 60C) are deductible allowances; charitable donations (section 61) and approved pension fund contributions (section 63) give tax credits. Keep the receipts and claim them in your return.
What is take-home after tax on a PKR 200,000 monthly salary?
On PKR 2,400,000 a year the tax is about PKR 162,000 (roughly PKR 13,500 a month), leaving around PKR 186,500 a month before provident fund and EOBI.
Do I still need to file if tax is already deducted?
Yes. Withholding is not a substitute for filing. You must file an annual return to appear on the ATL, claim any refund, and avoid non-filer rates.
Can I get a refund of over-deducted salary tax?
Yes. If more was withheld than your final liability, you claim the excess in your return and the FBR issues the refund after processing.