Introduction
Income tax in Pakistan might seem confusing at first, but it’s not hard once you learn the basics. If you’re earning money—whether as an employee, business owner, or landlord—you should understand how income tax works, who needs to pay it, and what kind of income is taxed.
This easy-to-follow guide explains the basics of income tax in Pakistan, so you can file your return confidently and avoid legal trouble.
What is Income Tax in Pakistan?
Income tax is the amount of money you pay to the government based on what you earn. The government uses this tax to fund roads, hospitals, schools, and other public services.
What is Taxable Income?
Taxable income is your total income minus any allowed deductions. You can deduct certain donations and allowances before calculating your final tax. Only the remaining amount is taxed.
What is Total Income?
Your total income includes all the money you earn from various sources—before any deductions. This includes salary, rent, business profits, capital gains, and more.
Types of Income (Heads of Income)
The Income Tax Ordinance, 2001 divides all income into five categories:
- Salary – If you are employed
- Income from Property – Rent or lease income
- Business Income – Profits from running a business
- Capital Gains – Profits from selling assets like property or shares
- Income from Other Sources – Prizes, interest from savings, etc.
Who Needs to Pay Income Tax in Pakistan?
Anyone who earns above the minimum taxable limit set by the Federal Board of Revenue (FBR) must file a tax return. This includes:
- Salaried individuals
- Business owners
- Freelancers
- Landlords
- Foreign income earners (in some cases)
Who is Considered a Resident for Tax Purposes?
You are a resident in Pakistan if:
- You stay in Pakistan for 183 days or more in a tax year, or
- You stay for at least 120 days this year and a total of 365 days in the last four years
Government employees working abroad are also considered residents.
Who is a Non-Resident?
If you do not meet the above criteria, you are a non-resident. Different income tax rules apply to non-residents.
What is Pakistan Source Income?
This is income earned from activities or sources within Pakistan. Examples include:
- Salary earned from a job in Pakistan
- Rent from property located in Pakistan
- Dividends from a Pakistani company
- Pension paid in Pakistan
- Profits on debt paid by a resident of Pakistan
What is Foreign Source Income?
Foreign source income comes from outside Pakistan. This includes:
- Salary from a job abroad
- Rent from overseas property
- Investments in foreign companies
Foreign income may still be taxable if you are a resident in Pakistan.
Who is a Taxpayer?
Under Pakistan tax law, a taxpayer can be:
- An individual
- A company
- An Association of Persons (AOP)
- The government or any public authority
What is a Company According to Tax Law?
A company includes:
- A business registered in Pakistan or abroad
- A non-profit organization
- A co-operative or finance society
- A trust or foundation
- A foreign association declared as a company by FBR
What is an Association of Persons (AOP)?
An AOP includes:
- Business partnerships
- Hindu Undivided Families
- Any group of people doing business together
It does not include registered companies.
What is a Tax Year in Pakistan?
The tax year runs from July 1 to June 30. The year is named based on the year it ends in. For example:
- July 1, 2024 to June 30, 2025 = Tax Year 2025
Some businesses follow a different 12-month period, called a Special Tax Year.
Why is Understanding Income Tax Important?
Understanding tax laws helps you:
- Avoid penalties
- File your return correctly
- Claim deductions legally
- Stay compliant with FBR
- Build a clean financial record for visa, loans, and business approvals
Need Help with Your Income Tax Return in Pakistan?
Whether you are an employee, landlord, freelancer, or business owner, filing taxes can be tricky without professional help.
Our legal team offers:
- Income tax filing services
- Sales tax registration and compliance
- Business registration and legal advice
Contact us today to get expert help and stay fully compliant with the law.