Every employer in Pakistan that pays salaries has to deduct income tax at source from those salaries and pay it to the government. The rules are not complicated once you see the steps, but the details change with every federal budget, and small mistakes repeat every month. This guide walks through salary tax calculation in Pakistan from the employer's side: what counts as taxable salary, how the slabs work, how the annual figure becomes a monthly deduction, and what to watch for.
Important: the slab figures below are the salaried slabs for tax year 2026-27 as we understand them. Slabs change with each federal budget, and individual circumstances vary. Always confirm the current slabs with the Federal Board of Revenue or your tax adviser before you run payroll on them. This article is a guide, not tax advice.
The basics: who deducts, and for which year
When you pay a salary, you act as the withholding agent: you deduct the employee's income tax from each salary payment and deposit it. The employee still owes the tax, but you collect it on the way.
Pakistan's tax year runs from 1 July to 30 June. Salaries paid from July 2026 to June 2027 belong to tax year 2026-27, which FBR also refers to as tax year 2027. The federal budget is usually announced in June, and new salary slabs normally apply from the first payroll in July. That is why the July payroll is the one most likely to go wrong.
How salary tax calculation in Pakistan works, step by step
The method is the same whatever the slabs are in a given year:
- Work out the annual taxable salary. Estimate what the employee will earn from you over the whole tax year: basic pay plus taxable allowances and benefits. For a steady monthly salary, this is simply the monthly taxable salary multiplied by 12.
- Find the slab. Look up which salaried slab that annual figure falls into.
- Calculate the annual tax. Each slab has a fixed amount for the income below it, plus a percentage of the income above the slab's starting point.
- Turn it into a deduction per pay period. Divide the annual tax by the number of pay periods. For monthly payroll, that is 12.
- Adjust when something changes. If salary, bonuses or slabs change during the year, recalculate the annual tax and spread what remains over the remaining months.
Not everything paid to an employee is necessarily taxed the same way. Some allowances and benefits may be exempt or valued under specific rules, so check how each item on your payslip is treated with your tax adviser.
Salaried tax slabs for tax year 2026-27
These are the salaried slabs for tax year 2026-27 (July 2026 to June 2027) that our worked examples use. The figures are annual taxable salary in rupees.
| Annual taxable salary (Rs) | Tax |
|---|---|
| Up to 600,000 | Nil |
| 600,001 to 1,200,000 | 1% of the amount over 600,000 |
| 1,200,001 to 2,200,000 | 6,000 + 11% of the amount over 1,200,000 |
| 2,200,001 to 3,200,000 | 116,000 + 20% of the amount over 2,200,000 |
| 3,200,001 to 4,100,000 | 316,000 + 25% of the amount over 3,200,000 |
| 4,100,001 to 5,600,000 | 541,000 + 29% of the amount over 4,100,000 |
| 5,600,001 to 7,000,000 | 976,000 + 32% of the amount over 5,600,000 |
| Above 7,000,000 | 1,424,000 + 35% of the amount over 7,000,000 |
Notice how the fixed amount in each row is the full tax on the slabs below it. That is what makes the system progressive: a higher rate applies only to the part of the income above each threshold, never to the whole salary.
Budgets sometimes add other elements, such as a surcharge on very high incomes. Whether one applies, and at what rate, depends on the budget for that year, so confirm it with FBR or your adviser.
A worked example
Take an employee on a steady taxable salary of Rs 200,000 a month, paid monthly for the whole of tax year 2026-27.
- Annual taxable salary: 200,000 × 12 = Rs 2,400,000.
- Slab: 2,200,001 to 3,200,000, so the tax is 116,000 plus 20% of the amount over 2,200,000.
- Amount over the threshold: 2,400,000 − 2,200,000 = 200,000. Twenty per cent of that is 40,000.
- Annual tax: 116,000 + 40,000 = Rs 156,000.
- Monthly deduction: 156,000 ÷ 12 = Rs 13,000.
The same method gives these results at other salary levels:
| Monthly salary (Rs) | Annual salary (Rs) | Annual tax (Rs) | Monthly deduction (Rs) |
|---|---|---|---|
| 80,000 | 960,000 | 3,600 | 300 |
| 200,000 | 2,400,000 | 156,000 | 13,000 |
| 300,000 | 3,600,000 | 416,000 | 34,667 (rounded) |
| 1,000,000 | 12,000,000 | 3,174,000 | 264,500 |
For the Rs 300,000 example: 316,000 + 25% of 400,000 = 416,000. For Rs 1,000,000 a month: 1,424,000 + 35% of 5,000,000 = 3,174,000. These figures leave out any surcharge, exemptions or other adjustments that may apply to a particular employee.
What changes each budget, and how to handle it
A new budget can change the thresholds, the rates, the fixed amounts, or add or remove a surcharge. Any of these changes the deduction for most of your staff at once. A simple routine helps:
- When the budget is announced in June, note the proposed salaried slabs, but wait for the final Finance Act before changing payroll.
- Update your slab table before the first July payroll, and record which tax year the slabs belong to.
- Recalculate a few employees by hand across different slabs and compare them with your payroll output.
- Tell staff if their deduction is changing, so a different net pay is not a surprise.
Changes during the year
A flat "monthly salary × 12" only works while nothing changes, and this is where most salary tax calculation in Pakistan goes wrong. In practice, salaries rise, bonuses are paid and people join or leave.
Increments and bonuses
When pay changes mid-year, re-estimate the annual taxable salary using what has already been paid plus what will be paid for the rest of the year. Work out the new annual tax, subtract the tax already deducted, and spread the balance over the remaining months. A large one-off bonus can push the year's income into a higher slab, so calculate it before paying, not after.
Joiners and leavers
For someone who joins mid-year, base the deduction on the salary they will earn from you for the rest of the tax year, together with any salary from a previous employer that they declare to you. For a leaver, make sure the final payslip settles the tax properly on what they actually earned from you in the year.
Non-monthly pay cycles
If you pay weekly, every two weeks or every four weeks, the same annual method applies, but the annual tax is spread over the number of pay periods in your cycle rather than 12. Agree the approach with your tax adviser and apply it consistently.
Common mistakes employers make
- Running July payroll on last year's slabs. The most frequent error, and it affects almost everyone at once.
- Applying the top rate to the whole salary. Each rate applies only to the income above its threshold, plus the fixed amount.
- Ignoring bonuses and arrears. They count towards the annual taxable salary and can move an employee into a higher slab.
- Not adjusting after an increment. Without recalculation, the year ends with tax under-deducted.
- Editing past payslips. If a deduction was wrong, correct it in later payslips and keep the original record intact.
- Treating every allowance the same. Check which items are taxable and how benefits are valued.
Record keeping
Keep, for each employee and each tax year, the taxable salary per payslip, the tax deducted, the slabs used, and any declarations from the employee, such as salary from a previous employer. Keep proof of each deposit, and file the withholding statements FBR requires on time. Employees will need a certificate of the tax deducted for their own returns, so your records should be able to produce it quickly.
Payroll software makes this easier when it keeps the slab table in one place and locks each issued payslip. In BMS Prime, each payslip's withholding tax is calculated from the FBR salaried slabs for the tax year, and the slabs are editable, so when a budget changes them you update them once and every new payslip follows. Issued payslips are locked, so the record of what was deducted never changes, and any correction goes into a later payslip. You can see how this fits with attendance, provident fund and the books on our page about payroll software for businesses in Pakistan.
If you are comparing systems, our guide on how to choose payroll software in Pakistan lists the questions worth asking, and the getting started guide shows how to run a past month through a free trial to check the tax figures against your own records.
Frequently asked questions
How is monthly tax on salary calculated in Pakistan?
Work out the employee's taxable salary for the whole tax year, apply the salaried slab that income falls into to get the annual tax, then divide that annual tax by the number of pay months. For a monthly salary of Rs 200,000, the annual salary is Rs 2,400,000, the annual tax under the 2026-27 slabs is Rs 156,000, and the monthly deduction is Rs 13,000.
What is the tax-free salary limit in Pakistan?
Under the 2026-27 salaried slabs, the first Rs 600,000 of annual taxable salary carries no tax, which is Rs 50,000 a month for someone paid evenly through the year. The limit is set by each budget, so confirm the current figure with FBR or your tax adviser before relying on it.
When does the tax year start in Pakistan?
The tax year runs from 1 July to 30 June. Payroll from July 2026 to June 2027 falls in tax year 2026-27, which FBR also calls tax year 2027. New slabs announced in a June budget normally apply from the first payroll in July.
What should an employer do if an employee joins mid-year?
Base the deduction on the salary the employee will receive from you for the rest of the tax year, together with any salary from a previous employer that the employee declares. Work out the annual tax on that total, subtract tax already deducted, and spread the balance over the remaining months. Confirm the approach with your tax adviser.
Who is responsible if too little tax is deducted from salary?
The employer is responsible for deducting tax at source on salary and depositing it, so a shortfall can become the employer's problem as well as the employee's. That is why slab updates, mid-year changes and bonuses need care. If you find an under-deduction, correct it in the following payslips and keep a clear record.