Pk Income Tax

Pakistan — Personal Income Tax (Individuals & AOP) — Skill v1.0

General reference only. This skill is general tax/accounting reference material for AI-assisted workflows. It has not been reviewed for any specific person's facts, documents, elections, deadlines, residency, filing status, or local procedures. Do not rely on it to file, pay, amend, or take a tax position without review by a qualified professional in the relevant jurisdiction.

Section 1 — Quick Reference

Salary Brackets (TY 2024-25 baseline — likely revised by Finance Act 2025; TBC under Finance Act 2025)

Applies where salary income is more than 75% of total taxable income (ITO 2001 First Schedule, Part I, Division I).

TBC — verify under Finance Act 2025 final text. Finance Act 2025 was widely expected to revise the lower-band rates (notably the 1% and 11% bands) downward in response to public consultation; until the final gazetted Schedule is confirmed for TY 2025-26, treat the above as the TY 2024-25 baseline and flag for reviewer.

Non-Salary Brackets — Business, Profession, and AOP (TY 2024-25 baseline; TBC under Finance Act 2025)

Applies to AOPs and to individuals where salary is 75% or less of total taxable income (ITO 2001 First Schedule, Part I, Division I, second sub-table).

10% Surcharge on High Income (Finance Act 2024 / retained Finance Act 2025)

A 10% surcharge applies on the income tax payable where the individual's taxable income exceeds PKR 10,000,000 in the tax year. The surcharge is computed as 10% of the tax charged under the salary or non-salary brackets above (before withholding credits). TBC — confirm Finance Act 2025 retention and exact base.

Filer vs Non-Filer (ATL)

ATL is published every Monday by FBR. To appear on ATL for a given tax year, the taxpayer must have filed the prior year's return AND paid the ATL surcharge of PKR 1,000 (individual) / PKR 10,000 (AOP) / PKR 20,000 (company) where the return was filed after the due date. Surcharge amounts are TBC under Finance Act 2025.

Conservative Defaults Snapshot

Section 2 — Required Inputs and Refusal Catalogue

Required Inputs

Minimum viable — confirmation of (a) residency for the full tax year under §82 ITO 2001 (183-day rule), (b) classification as individual (salaried, business, or both) or AOP, (c) ATL status of the taxpayer at the time of filing, and (d) at least one of: (i) bank statements covering the tax year, (ii) ledger / books of account for business income, or (iii) salary certificate (for salaried), plus any withholding certificates (CPRs / payment proofs).

Recommended — CNIC / NTN, prior-year return acknowledgement and ATL surcharge payment proof, withholding certificates (mobile, utilities, banking, contracts), bank account profile, asset register with cost and acquisition date, wealth statement (mandatory for individuals under §116), PSEB registration certificate if claiming IT export benefits, foreign withholding tax certificates for §103 credit, AOP partnership deed and member CNICs.

Ideal — full trial balance, prior-year IRIS submission XML, complete CPR pack reconciled to bank statements, e-PRC for foreign exchange remittance receipts (for IT exporters), foreign asset disclosure schedule for residents with overseas holdings, and IRIS login confirmation.

Refusal if minimum is missing — SOFT WARN. Residency unknown = hard stop (treaty / source-only taxation needs separate analysis). ATL status unknown = compute on filer basis but flag the withholding credit risk. No records at all but client insists on filing = hard stop.

Refusal Catalogue

R-PK-IT-1 — Residency uncertain or non-resident. "Pakistan taxes residents on worldwide income and non-residents on Pakistan-source income only (ITO 2001 §11). Dual residency, mid-year migration, or non-resident with mixed-source income requires treaty analysis. Out of scope — escalate to a Pakistan tax practitioner."

R-PK-IT-2 — Company / corporate return. "Companies (Pvt Ltd, Public Ltd) file under the corporate return regime with separate rates (currently 29% standard / 20% small company) and super tax under §4C. Out of scope — escalate to a Pakistan corporate tax practitioner."

R-PK-IT-3 — Capital gains on listed securities. "Capital gains on listed shares are collected by the National Clearing Company of Pakistan Limited (NCCPL) under §37A and reported separately on the IRIS return. This skill does not compute NCCPL gains; flag for reviewer and obtain the NCCPL annual certificate."

R-PK-IT-4 — Property gain / immovable property disposal. "Capital gains on immovable property under §37(1A) and §236C/§236K advance taxes follow a separate rate schedule keyed to holding period and filer status. Out of scope — escalate."

R-PK-IT-5 — Provincial sales tax on services. "Services are taxed by the four provinces and ICT (SRB / PRA / KPRA / BRA / ICT) separately from FBR income tax. This skill covers federal income tax only. Route service-tax queries to the provincial sales tax skill."

R-PK-IT-6 — Tax amnesty / declared foreign assets. "Historic amnesty schemes (Assets Declaration Act 2019 etc.) and current foreign-asset declarations under §116A require specialist handling. Out of scope — escalate."

R-PK-IT-7 — Notices, audits, or appeals. "Audit (§177), amendment of assessment (§122), recovery proceedings (§137), or appeal before Commissioner Appeals / ATIR carry penalty and default surcharge implications. Do not advise — escalate immediately."

R-PK-IT-8 — Salary tax adjustment for employees (PAYE). "Employee monthly withholding under §149 is computed by the employer. This skill covers the individual's annual return reconciling §149 withholding to bracket tax — not monthly PAYE computation for an employer client."

R-PK-IT-9 — Super tax under §4C. "Super tax on high earners (currently applied above PKR 150 million / PKR 500 million thresholds depending on bracket) is a separate charge from the 10% surcharge in this skill. Flag for reviewer and use a specialist computation."

Section 3 — Tier 1 Rules: Residency, Brackets, ATL Implications

3.1 Residency (ITO 2001 §82)

An individual is a resident for a tax year if:

• Present in Pakistan for 183 days or more in aggregate during the tax year (1 July – 30 June); OR
• An employee or official of the Federal or Provincial Government posted abroad in the tax year.

Residence is determined for the whole tax year — Pakistan does not have a split-year regime. A person who becomes resident on day 183 is resident for the entire tax year and is taxed on worldwide income for that year (subject to §103 foreign tax credit and any treaty relief).

AOP residency (§84): an AOP is resident if its control and management is situated wholly or partly in Pakistan in the tax year.

3.2 Heads of income (§11(1))

Six heads:

1. Salary (§12)
2. Income from property (§15)
3. Income from business (§18) — includes freelance / professional / sole-proprietor income
4. Capital gains (§37 / §37A) — out of scope per refusals
5. Income from other sources (§39) — interest, royalty, prize bonds, etc.
6. Foreign source income (§102 / §103)

Freelance and self-employed professional income is taxed under Income from Business (§18), not under "other sources", unless the activity is genuinely casual.

3.3 Salary vs non-salary classification (First Schedule)

The First Schedule, Part I, Division I provides two parallel rate tables. The salary table applies where salary income is more than 75% of total taxable income. Otherwise the non-salary table applies.

Worked test:

• Total taxable income PKR 3,000,000, of which salary PKR 2,400,000 (80%) → salary table.
• Total taxable income PKR 3,000,000, of which salary PKR 2,000,000 (66.7%) → non-salary table applies to the whole.
• A salaried person who also freelances must check the 75% test annually; the classification flips once salary drops below 75%.

The non-salary table top rate (45%) is materially higher than the salary table top rate (35%). The 75% boundary is therefore a hard cliff edge and should be flagged for any taxpayer whose salary fraction is near 75%.

3.4 Wealth statement (§116)

Every resident individual filing a return is required to file a wealth statement and a wealth reconciliation showing year-on-year movement in net assets. Non-filing of the wealth statement is a separate breach from non-filing of the return. The wealth statement must reconcile to the change in net wealth, with unexplained increases potentially treated as taxable income under §111.

3.5 ATL — filer / late filer / non-filer

The Active Taxpayers List drives differential withholding under the Tenth Schedule. Effect:

• Withholding under §149 (salary), §151 (profit on debt), §152 (non-resident payments), §153 (services / contracts / supplies), §233 (commissions), §234/235 (motor vehicle / electricity), §236 family (mobile, banking, property, education, foreign travel) all carry filer-vs-non-filer rate differentials.
• Non-filers typically pay 2× to 3× the filer rate on the same transaction code.
• The "late filer" tier introduced by Finance Act 2024 applies an intermediate rate for certain codes (notably property transactions under §236C/§236K). TBC — verify Finance Act 2025 treatment of late filer tier.
• To be on ATL for a given tax year, the prior year's return must have been filed AND any ATL surcharge paid. ATL surcharge amounts are TBC under Finance Act 2025.

3.6 The 10% surcharge on income > PKR 10 million

A 10% surcharge on the income tax payable applies to any individual or AOP whose taxable income exceeds PKR 10,000,000 in the tax year. Mechanics (TBC under Finance Act 2025 final text):

Tax under First Schedule brackets (salary or non-salary)
× 110%  (i.e. + 10% surcharge)  if taxable income > PKR 10,000,000
= Gross tax payable
  – Withholding credits (§168, etc.)
  – Foreign tax credit (§103)
  – Refundable advance taxes
= Final tax payable or refundable

The surcharge is applied on the bracket tax before withholding credits — it increases the underlying tax liability, not the net cash payable per se.

Section 4 — Tier 2: Section 65 / PSEB IT Export, Surcharges, Foreign Income

4.1 IT and IT-enabled services export — final tax / exemption

Pakistan offers a long-standing concessionary regime for export of IT and IT-enabled services. The regime has migrated through several statutory homes over the past five years; the controlling provision for TY 2025-26 is TBC under Finance Act 2025 final text but historically rests in:

• Clause (133) of Part I of the Second Schedule (exemption on export of IT services up to 2025), and
• The Final Tax Regime for IT exports under §154A (introduced by FA 2022) which applies a final tax (commonly 0.25% or 1% depending on PSEB registration status) on export proceeds realised through normal banking channels.

Key conditions for the concessionary IT export regime:

1. PSEB (Pakistan Software Export Board) registration. Without active PSEB registration, the concessional 0.25% final tax is unavailable; the default 1% (or higher) rate applies and ordinary withholding by the bank under §154A operates.
2. Foreign exchange remittance through banking channel. Export receipts must be realised through a scheduled bank and supported by an e-PRC (Electronic Proceeds Realisation Certificate). Cash or undocumented receipts do not qualify.
3. Filing of return. The exporter must be on ATL and must file the annual return; failure makes the concession unavailable.
4. No double-claim. Income subjected to §154A final tax is not included in the progressive bracket computation; it is reported in IRIS under the final tax schedule and the relevant bank-deducted tax is the final liability for that income stream.

Practical impact for a freelance software developer:

• If registered with PSEB and receiving USD via SWIFT through a Pakistani bank, the bank deducts 0.25% on remittance and that is the final tax on the export proceeds.
• The bracket computation (salary / non-salary tables) applies only to other income heads (local services, interest, rent, etc.).
• The 10% surcharge does not apply to income that has already borne final tax under §154A — final tax income is excluded from the "taxable income" used to test the PKR 10 million threshold. TBC — confirm exact treatment under Finance Act 2025.

4.2 Tax credits — Sections 61–65 family

Common credits available against bracket tax:

Credits are applied at the average rate of tax (total tax ÷ total taxable income), not at the marginal rate. The order of credits is set out in §4(3): brackets → credits → minimum tax → surcharges → refund.

4.3 Foreign source income and §103 foreign tax credit

Residents are taxed on worldwide income (§11(5)). Foreign source income is grossed up (add back foreign withholding to gross), included in the relevant head, and then §103 credit is allowed for foreign income tax paid:

§103 credit = lesser of:
  (a) foreign income tax actually paid on the foreign income, and
  (b) Pakistan tax otherwise payable on that foreign income
      = (foreign source income / total taxable income) × total Pakistan tax

Excess foreign tax is not carried forward. Documentation: official certificate from the foreign tax authority or the foreign withholding agent; bank advice alone is generally insufficient.

Treaty relief (§107) overrides §103 where a DTA gives a more favourable outcome — e.g. exemption-with-progression instead of credit. TBC — confirm treaty position for the relevant country.

4.4 Other charges and minimum taxes to watch

• Minimum tax on turnover (§113): 1.25% (general) on turnover applies to individuals with turnover above PKR 100,000,000 (TBC) — flag for any sole-prop with significant gross revenue.
• Alternate Corporate Tax (§113C): corporate only, out of scope.
• Workers Welfare Fund / Workers Profit Participation Fund: generally corporate; flag if AOP industrial.
• Super tax under §4C: separate from the 10% surcharge; applies to taxable income above defined thresholds (currently PKR 150M+ in brackets, TBC under Finance Act 2025). Refusal R-PK-IT-9.
• Default surcharge (§205): simple interest at the rate prescribed (currently 12% per annum, TBC) on unpaid tax from the due date until paid.

4.5 AOP — separate entity taxation (§92)

An AOP is taxed as a separate person under the non-salary table (First Schedule Part I Division I). Members are NOT separately taxed on their share of AOP profit — §92(1) explicitly exempts the member's share from further tax in the member's individual return, because the AOP has already borne the tax.

Practical effect:

• The AOP files its own return (deadline 31 December) and pays bracket tax on its taxable income.
• Each member receives a share of profit which is reported in the member's individual return as "exempt" (informational only) — it does not enter the bracket computation.
• Salary or remuneration paid by an AOP to a member is not deductible at the AOP level (§21(j)) and is not separately taxable at the member level (§92(2)).
• Profit shares from AOPs are added back for rate purposes in some computations historically — TBC under current ITO 2001 wording.

Section 5 — Worked Example: Freelance Software Developer in Karachi

Facts.

• Taxpayer: Saad, resident individual (Karachi), single, no dependents.
• Tax Year 2025-26 (1 July 2025 – 30 June 2026).
• Engaged as a freelance software developer for foreign clients.
• Gross fee receipts: PKR 5,000,000 for the year.
• Of which PKR 4,000,000 is realised through SBP-permitted banking channel against e-PRC from foreign clients (qualifies for §154A IT export final tax).
• Remaining PKR 1,000,000 is from local Pakistani clients (domestic services), no PSEB exemption.
• Saad is registered with PSEB and is on ATL for TY 2025-26.
• Bank deducted 0.25% × 4,000,000 = PKR 10,000 as final tax under §154A on the export proceeds.
• Local clients withheld §153 tax at filer rate (assume 3% on services): 3% × 1,000,000 = PKR 30,000 (creditable against bracket tax).
• Allowable business expenses (rent, internet, equipment depreciation, etc.) attributable to local revenue: PKR 200,000.
• No other income, no foreign income credit, no zakat.

Step 1 — IT export proceeds (§154A final tax).

This stream is excluded from bracket computation and excluded from the PKR 10 million surcharge threshold test.

Step 2 — Bracket computation on non-final income.

Salary share of total non-final income: PKR 0 / PKR 1,000,000 = 0% → non-salary table applies.

Step 3 — 10% surcharge test.

Taxable income for surcharge purposes: PKR 800,000 (final-tax income excluded). PKR 800,000 < PKR 10,000,000 → no surcharge applies.

Step 4 — Overall result.

• Final tax on export stream: PKR 10,000 (bank-deducted, settled).
• Tax on local stream: PKR 30,000 bracket tax fully covered by PKR 30,000 §153 withholding → nil net payable.
• Net cash payable with return: Nil.
• Refund position: nil refund (withholding exactly matched bracket tax).

Reviewer notes.

• Confirm PSEB registration certificate is current for the entire TY 2025-26; lapse mid-year reverts the affected proceeds to ordinary withholding at 1% (TBC).
• Confirm each export receipt has a matching e-PRC from the bank.
• Confirm Saad is on ATL on the date of every withholding event (filer rate applied at 3% under §153 assumed).
• File wealth statement under §116 reconciling net asset movement.
• Deadline: 30 September 2026.
• IRIS workflow: report export income in the Final Tax schedule (separate worksheet) and local income in the Business Income schedule.

Alternative scenario — what if Saad were NOT on PSEB / had no e-PRC?

The PKR 4,000,000 export stream would then be ordinary business income, included in the bracket computation:

Taxable income PKR 4.8M < PKR 10M → no 10% surcharge. Cost of failing to register with PSEB: ~PKR 1.28M of additional tax for this profile. The numbers above are illustrative under the TY 2024-25 baseline non-salary brackets and TBC under Finance Act 2025.

Section 6 — Filing and Payment Mechanics

6.1 IRIS portal

The annual return is filed through IRIS (https://iris.fbr.gov.pk), FBR's e-filing platform. Authentication uses CNIC (individuals) or NTN (AOP) plus password. IRIS pre-populates withholding data from the FBR Tax Asaan / Maloomat repositories pulled from the various §149/§151/§153/§236 withholding agents — reviewer must reconcile against client's CPRs.

Key IRIS workflow:

1. Login → "Declaration" → "114(1) (Return of Income for Individual)" or "114(1) — AOP" as applicable.
2. Pre-population: IRIS pulls withholding data; review and reconcile.
3. Complete heads of income — Salary, Business, Property, Other Sources, Capital Gains, Final Tax (§154A, §155, §236C etc.), Foreign Income.
4. Complete tax credits (§61–§65 family) and adjustments.
5. Complete the wealth statement (§116) — required for all resident individuals filing a return.
6. Generate the CPR (Computerised Payment Receipt) for any balance payable; pay via authorised bank channel.
7. Submit return. IRIS issues an acknowledgement.

6.2 Deadlines

6.3 Advance tax — §147

Resident individuals and AOPs with the latest assessed taxable income above the threshold (currently PKR 1,000,000 — TBC under FA 2025) must pay advance tax in four quarterly instalments under §147. Each instalment is computed as:

Advance tax for the quarter
  = (latest assessed taxable income × current year's bracket rate / 4)
  – withholding tax collected during the quarter

Failure to pay advance tax triggers default surcharge under §205.

6.4 Late filing and late payment

Specific penalty amounts are TBC under Finance Act 2025. Default surcharge rate is set by SRO and revised periodically; verify the rate prevailing for the relevant period.

6.5 ATL surcharge to regain filer status

A taxpayer who files the prior year's return after the due date can pay an ATL surcharge to re-enter the Active Taxpayers List:

The surcharge must be paid before the name re-appears on the next weekly ATL refresh. Without ATL, the taxpayer faces the non-filer withholding multiplier on all subsequent transactions, which is typically far costlier than the ATL surcharge itself.

6.6 Refunds (§170)

Refunds of excess withholding or §103 credit are claimed in the return and processed by the Commissioner. Refund processing in practice can take 6–24 months and may trigger audit selection under §177. Flag any large refund position for reviewer.

Section 7 — Conservative Defaults

Section 8 — Sources

Primary legislation

• Income Tax Ordinance 2001 (ITO 2001) — the principal tax statute, as amended by successive Finance Acts.
• Income Tax Rules 2002 — procedural rules under ITO 2001.
• Finance Act 2024 — amendments effective TY 2024-25 including the late-filer tier and surcharge changes.
• Finance Act 2025 — amendments effective TY 2025-26. TBC — verify final gazetted text for rate tables, surcharge retention, and threshold changes.

Key provisions referenced

• §11 — Heads of income.
• §18 — Income from business.
• §20 — Deductions in computing business income.
• §57 — Set-off and carry-forward of business losses (6 years).
• §61–§65 — Tax credits (charitable donations, listed-shares investment, voluntary pension).
• §82 / §84 — Residence of individuals / AOPs.
• §92 — AOP separate-entity taxation; member share exemption.
• §103 — Foreign tax credit.
• §107 — Tax treaty relief.
• §111 — Unexplained income / assets.
• §113 — Minimum tax on turnover.
• §114 — Return of income.
• §116 — Wealth statement.
• §118 — Due dates for returns.
• §119 — Extension of time.
• §137 — Payment of tax.
• §147 — Advance tax payable by taxpayer.
• §149 — Salary withholding (employer).
• §151 — Profit on debt withholding.
• §153 — Payments for goods, services, contracts.
• §154A — Final tax on export of IT and IT-enabled services.
• §170 — Refunds.
• §177 — Audit.
• §182 / §182A — Late-filing penalties.
• §192 / §192A — Concealment penalties.
• §205 — Default surcharge.
• §236 family — Various advance-tax / withholding codes (mobile, banking, property, education, foreign travel).
• §4C — Super tax on high-earning persons (out of scope, see refusal R-PK-IT-9).
• First Schedule, Part I, Division I — Salary and non-salary rate tables.
• Second Schedule, Part I, Clause (133) — Historic IT export exemption (TBC residual applicability).
• Tenth Schedule — Higher withholding rates for persons not appearing on ATL.

Filing infrastructure

• Federal Board of Revenue (FBR) — https://www.fbr.gov.pk
• IRIS portal — https://iris.fbr.gov.pk
• ATL search — https://www.fbr.gov.pk/active-taxpayer-list-atl
• PSEB (Pakistan Software Export Board) — https://www.pseb.org.pk
• State Bank of Pakistan (SBP) — exchange rate and foreign exchange remittance framework.

Cross-references within this package

• pakistan-sales-tax.md — federal sales tax on goods (FED on services is provincial).
• foundation.md — workflow architecture and conservative-defaults principle.
• intake.md — onboarding question flow.
• references.md — source repository and verified-link index.

PROHIBITIONS

• NEVER apply salary brackets to a taxpayer whose salary is 75% or less of taxable income — use the non-salary table.
• NEVER assume ATL / filer status without verifying against the current weekly Active Taxpayers List.
• NEVER claim §154A 0.25% concessional rate without a current PSEB registration certificate AND e-PRC documentation for every receipt.
• NEVER include §154A final-tax export income in the bracket computation, and NEVER include it in the PKR 10 million surcharge threshold test (TBC under FA 2025).
• NEVER re-tax an AOP member's share of profit at the member level — §92(1) exempts it.
• NEVER allow foreign tax credit under §103 without an official foreign tax authority certificate.
• NEVER carry forward foreign tax credit — excess foreign tax is lost.
• NEVER omit the wealth statement under §116 for a resident individual filing a return.
• NEVER plug a wealth-statement reconciliation gap — flag for §111 unexplained-income risk.
• NEVER file or instruct filing — this skill produces a working paper for review by a registered Pakistan tax practitioner only.
• NEVER apply Finance Act 2025 figures as confirmed without checking the final gazetted text — flag "TBC under Finance Act 2025" wherever in doubt.
• NEVER compute super tax under §4C in this skill — refuse and escalate (R-PK-IT-9).
• NEVER advise on audit, recovery, or appeal proceedings — escalate (R-PK-IT-7).

Disclaimer

This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a registered Pakistan tax practitioner (Income Tax Practitioner, Chartered Accountant, or equivalent licensed professional) before filing or acting upon.

The most up-to-date, verified version of this skill is maintained at openaccountants.com. Log in to access the latest version, request a professional review from a licensed accountant, and track updates as tax law changes.

Source: OpenAccountants — open tax Guides for AI, reviewed by named CPAs/CAs/EAs. Quality: source-cited draft. For always-current figures and named-accountant backing, connect the OpenAccountants MCP server (openaccountants-mcp).