At Arshad Associates, we understand that salary taxation is often confusing for professionals, business owners, and employees alike. The 2024-25 income tax regime in Pakistan brings some key rules that every salaried individual should know — not only to ensure compliance but also to minimize tax liability legally.
In this definitive guide, our tax experts break down:
✅ What qualifies as salary?
✅ How is salary taxed in Pakistan?
✅ What exemptions, deductions, and reliefs are available?
✅ How can you plan your salary structure to save tax?
Let’s get started!
📌 What is Salary for Tax Purposes?
Under the Income Tax Ordinance, 2001, salary means any payment received by an individual from an employer, whether as:
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🏦 Basic salary
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🎁 Bonuses / commissions / gratuities
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💳 Allowances (house rent, conveyance, utilities, medical, etc.)
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🏠 Perquisites (accommodation, car, loans, etc.)
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✈ Leave encashment / profit in lieu of salary
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🎓 Pension / annuities / retirement benefits (if unapproved)
👉 Important: Both cash and non-cash benefits are considered salary and are taxed accordingly.
📌 When is Salary Taxed? (Receipt Basis)
In Pakistan, salary is taxed on a receipt basis — meaning:
👉 Tax applies in the year you actually receive the salary, not necessarily when it was earned.
🔹 Example:
If you earned salary for June 2024 but received it in July 2024, it will be taxed in 2024-25.
✅ Relief available:
If arrears are taxed in a later year, you may apply to the Commissioner for relief — the arrears can be taxed at the rates that applied in the year they were due.
📌 Resident vs Non-Resident Salaried Individuals
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🇵🇰 Residents: Taxable on worldwide salary income.
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🌍 Non-Residents: Taxable only on salary earned in Pakistan or from a Pakistan-source employer.
❗ Special case: Government employees posted abroad are treated as resident for tax purposes.
📌 2024-25 Tax Slabs on Salary Income
| Annual Taxable Salary (PKR) | Tax Rate |
|---|---|
| 0 – 600,000 | 0% |
| 600,001 – 1,200,000 | 5% of the amount exceeding 600,000 |
| 1,200,001 – 2,200,000 | 30,000 + 15% of the amount exceeding 1,200,000 |
| 2,200,001 – 3,200,000 | 180,000 + 25% of the amount exceeding 2,200,000 |
| 3,200,001 – 4,100,000 | 430,000 + 30% of the amount exceeding 3,200,000 |
| Above 4,100,000 | 700,000 + 35% of the amount exceeding 4,100,000 |
📌 Examples of Tax Calculation
➡ Example 1: Salary = PKR 1,500,000
Tax = 30,000 + 15% of (1,500,000 – 1,200,000) = 30,000 + 45,000 = PKR 75,000
➡ Example 2: Salary = PKR 3,500,000
Tax = 430,000 + 30% of (3,500,000 – 3,200,000) = 430,000 + 90,000 = PKR 520,000
📌 Taxable Components of Salary
✅ Allowances & Perks
| Component | Tax Treatment |
|---|---|
| House Rent Allowance | Fully taxable unless part of gross taxable salary where separate accommodation is not provided |
| Medical Allowance | Exempt up to 10% of basic salary (if unclaimed medical facility) |
| Utilities Allowance | Fully taxable |
| Conveyance Allowance | Taxable (except special cases e.g. disabled employees) |
| Car Provided by Employer | 10% of car cost (if car + driver) OR 5% of cost (if car only) |
| Accommodation Provided | 45% of basic salary (or fair market rent) added to taxable income |
| Interest-Free Loans > 1M | Notional interest taxable (benchmark rate) |
📌 Deductions & Exemptions
🏷 You can claim these deductions:
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✅ Zakat paid
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✅ Educational expenses — 5% of taxable income or PKR 60,000 per child (whichever is less; taxable income must not exceed PKR 1.5M)
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✅ Contribution to approved pension funds
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✅ Interest on Provident Fund — Exempt up to 16% interest rate
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✅ Gratuity / Pension / Commutation of Pension — Exempt if approved scheme
📌 Special Tax Relief
✅ Teachers & Researchers:
25% reduction in tax liability (if working at HEC-recognized institutions).
✅ 75% Salary Rule:
If ≥ 75% of your income is salary, the entire salary is taxed under the salary head. Otherwise, the tax may be split across heads (salary/business).
📌 Adjusting Tax with Employer
Every salaried person can:
👉 Submit Form 3 to employer to:
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Adjust for Zakat, donations, advance tax
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Adjust for tax credit on investments
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Claim admissible deductions
👉 The employer will deduct the correct tax each month.
📌 How to Verify and File Your Tax
1️⃣ Log into FBR Iris
2️⃣ Check withholding summary / tax payment details
3️⃣ Download your Tax Deduction Certificate from employer
4️⃣ File your annual return by 30 September 2025 (expected deadline)
💡 Tip: Arshad Associates can handle your filing and ensure all deductions and credits are applied accurately!
📌 Smart Tax Planning for Salaried Individuals
💡 Pro tips from Arshad Associates:
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Opt for medical allowance up to 10% of basic rather than reimbursable medical facility if you spend less.
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Utilize your investment tax credits (e.g. life insurance, pension schemes).
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If eligible, claim teacher/researcher relief.
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Plan to receive bonuses and allowances within the most tax-efficient year.
📌 Conclusion
Understanding your salary tax obligations helps you stay compliant and take advantage of all legal reliefs. At Arshad Associates, we help salaried individuals, freelancers, and businesses manage their taxes efficiently.
👉 Need help with tax filing or salary structuring?
📞 Contact Arshad Associates today for expert advice!
