What Is The Rate Of Income Tax In Pakistan For Individuals?

 The income tax rate for individuals in Pakistan is determined by the Federal Board of Revenue (FBR) and is based on a progressive Tax Calculator Pakistan system. This means that individuals with higher incomes are subject to higher tax rates, while those with lower incomes pay a smaller percentage of their earnings in taxes. The tax system in Pakistan is designed to be equitable, ensuring that individuals contribute to the country's revenue based on their ability to pay.

1. Tax Residency and Scope

Before delving into the tax rates, it is essential to understand how tax residency status impacts an individual’s tax liability. A resident in Pakistan is someone who has stayed in the country for 183 days or more during a tax year (July 1 to June 30). Residents are taxed on their worldwide income, meaning they must report all income earned both in and outside of Pakistan. On the other hand, non-residents are only taxed on income that is sourced from within Pakistan.

2. Progressive Income Tax System

Pakistan’s income tax structure is progressive, meaning that the more you earn, the higher percentage of your income is taxed. Income is divided into brackets, and each portion of income falling within a specific bracket is taxed at a different rate. This progressive nature helps reduce the tax burden on lower-income earners while ensuring that higher-income earners contribute proportionately more.

3. Income Tax Slabs for Salaried Individuals (2024)

For salaried individuals, the tax year 2024 (July 1, 2023, to June 30, 2024) saw the following tax slabs implemented:

Up to PKR 600,000 in earnings: 

Income between PKR 600,001 and PKR 1,200,000: 0% (no tax) 

Between PKR 1,200,001 and PKR 2,400,000, 2.5% of income: 12.5%

Income between PKR 2,400,001 and PKR 3,600,000: 17.5%

Between PKR 3,600,001 and PKR 6,000,000 in earnings: 22.5%

Income above PKR 6,000,000: 32.5%

For instance, the following is how income tax would be calculated for a salaried worker who earns PKR 1,500,000 annually:

First PKR 600,000 is tax-free.

The next PKR 600,000 is taxed at 2.5%, which results in PKR 15,000.

The remaining PKR 300,000 is taxed at 12.5%, which results in PKR 37,500.

The total tax liability would be PKR 15,000 + PKR 37,500 = PKR 52,500.

4. Income Tax Slabs for Non-Salaried Individuals

For non-salaried individuals, such as business owners or freelancers, the tax rates tend to be higher. The tax slabs for non-salaried individuals are as follows:

Income up to PKR 600,000: 0% (No tax)

Income between PKR 600,001 and PKR 1,200,000: 5%

Income between PKR 1,200,001 and PKR 2,400,000: 12.5%

Income between PKR 2,400,001 and PKR 3,600,000: 17.5%

Between PKR 3,600,001 and PKR 6,000,000 in earnings: 22.5%

Income above PKR 6,000,000: 32.5%

Non-salaried individuals often have more complex income sources, such as business profits or investments, which may lead to a higher tax burden if not managed properly.

5. Tax Exemptions and Deductions

While the Tax Calculator Pakistan slabs mentioned apply to the total income, some exemptions and deductions can reduce the taxable income for an individual. Some common exemptions include:

Zakat: Zakat donations are deductible from taxable income.

Pension and Retirement Funds: Contributions to recognized pension funds are tax-exempt.

Charitable Donations: Certain charitable contributions can be deducted from taxable income.

Education Expenses: In some cases, expenses for education (such as student loans) may reduce the taxable amount.

6. Filing and Paying Income Tax

All individuals who earn taxable income must file annual tax returns with the FBR. The deadline for filing is typically at the end of September each year, though extensions are sometimes granted. Salaried individuals often have their taxes deducted at the source, but those with additional income streams or non-salaried income may need to calculate and pay their taxes separately.

Conclusion

In Pakistan, the rate of income tax for individuals is determined by their level of income and whether they are salaried or non-salaried.  The progressive nature of the tax system and Hamza & Hamza Law Associates ensures that higher earners contribute more, while exemptions and deductions provide relief to lower-income individuals. Staying informed of the latest tax slabs and filing taxes on time is critical for maintaining compliance with Pakistan’s tax regulations.