Calculating income tax in Pakistan can be complex due to varying tax slabs, exemptions, and deductions. Whether you’re a salaried individual, freelancer, or business owner, understanding how to compute your tax liability is crucial for financial planning.
This step-by-step guide for 2025 will help you accurately determine your income tax based on the latest Federal Board of Revenue (FBR) tax slabs and rules.
Step 1: Determine Your Taxable Income
Your taxable income is your total earnings minus allowable deductions and exemptions.
For Salaried Individuals:
- Gross Salary (Basic + Allowances)
- Subtract Exemptions (e.g., House Rent Allowance, Conveyance, Medical)
- Add Other Income (Rental, Investments, Bonuses)
For Non-Salaried (Business/Freelancers):
- Total Revenue (Sales, Services, Freelance Earnings)
- Subtract Business Expenses (Rent, Utilities, Salaries)
- Net Profit = Taxable Income
Step 2: Apply the Latest FBR Tax Slabs (2025)
A. Tax Slabs for Salaried Individuals (2025)
| Income Range (PKR) | Tax Rate (%) |
|---|---|
| Up to 600,000 | 0% |
| 600,001 – 1,200,000 | 2.5% |
| 1,200,001 – 2,400,000 | 12.5% |
| 2,400,001 – 3,600,000 | 20% |
| 3,600,001 – 6,000,000 | 25% |
| 6,000,001 – 12,000,000 | 32.5% |
| Above 12,000,000 | 35% |
B. Tax Slabs for Non-Salaried Individuals (2025)
| Income Range (PKR) | Tax Rate (%) |
|---|---|
| Up to 400,000 | 0% |
| 400,001 – 800,000 | 5% |
| 800,001 – 1,600,000 | 10% |
| 1,600,001 – 2,400,000 | 15% |
| 2,400,001 – 3,000,000 | 20% |
| 3,000,001 – 4,000,000 | 25% |
| 4,000,001 – 6,000,000 | 30% |
| Above 6,000,000 | 35% |
Step 3: Calculate Tax Using Progressive Taxation
Pakistan follows a progressive tax system, meaning higher income is taxed at higher rates.
Example Calculation for a Salaried Person (Annual Income: PKR 2,000,000)
- First 600,000 → 0% = PKR 0
- Next 600,000 (600,001 – 1,200,000) → 2.5% = PKR 15,000
- Remaining 800,000 (1,200,001 – 2,000,000) → 12.5% = PKR 100,000
- Total Tax = PKR 15,000 + PKR 100,000 = PKR 115,000
Example for a Business Owner (Annual Profit: PKR 3,500,000)
- First 400,000 → 0% = PKR 0
- Next 400,000 (400,001 – 800,000) → 5% = PKR 20,000
- Next 800,000 (800,001 – 1,600,000) → 10% = PKR 80,000
- Next 800,000 (1,600,001 – 2,400,000) → 15% = PKR 120,000
- Next 600,000 (2,400,001 – 3,000,000) → 20% = PKR 120,000
- Remaining 500,000 (3,000,001 – 3,500,000) → 25% = PKR 125,000
- Total Tax = PKR 20,000 + 80,000 + 120,000 + 120,000 + 125,000 = PKR 465,000
Step 4: Subtract Tax Credits & Deductions
You can reduce your tax liability through:
1. Tax Credits
- Investment in Shares/Mutual Funds (Up to 15% of taxable income)
- Provident Fund Contributions
- Health & Education Expenses
2. Allowable Deductions
- Zakat & Charity (If paid through approved channels)
- Medical Insurance Premiums (Up to PKR 25,000)
- House Rent Allowance (HRA) Exemption
Step 5: Final Tax Liability & Filing
After deductions:
- Final Tax Payable = Calculated Tax – Tax Credits
- File Your Return via FBR’s IRIS Portal (https://iris.fbr.gov.pk)
Conclusion
Calculating income tax in Pakistan requires understanding tax slabs, deductions, and exemptions. By following this 2025 step-by-step guide, you can:
✔ Estimate your tax liability accurately
✔ Plan tax-saving investments
✔ Avoid penalties with timely filing
For quick calculations, use an online Income Tax Calculator Pakistan 2025 for free!
