Open your salary slip and you will probably see tax already taken out. Money leaves before it ever reaches you. That is withholding tax, and almost every working person in Pakistan meets it without thinking about it.
This post explains what that deduction is, who makes it, and what it means for the money you actually keep. Every figure below comes from the Federal Board of Revenue (FBR) and the Income Tax Ordinance 2001, the law that runs the system.
What is withholding tax in Pakistan?
Withholding tax is income tax taken at the source of a payment. The person paying you takes a percentage out and sends it to the FBR before you get the rest. Your employer does it with your salary. Your bank does it with your profit. Your client does it with your fees.
Think of it as paying tax on time, in small pieces. The law behind it is the Income Tax Ordinance 2001. The FBR calls the one who takes the money out a withholding agent.
Who acts as a withholding agent?
The law lists who must withhold. The main ones are:
- Employers, on salaries
- Banks and financial institutions, on account profit
- Companies and government departments, on payments for goods, services and contracts
- Registrars, on property transfers
If you run a business and pay for a service, rent, or a contract above a set limit, you can be a withholding agent too. That is not a title anyone chooses. Section 153 of the Ordinance makes it a duty.
How much is taken from your salary?
Salary tax is the one most people see every month. Your employer works out your yearly income and deducts the tax monthly under Section 149. Rates are slab based. The FBR updated them in the Finance Act 2025:
- Up to Rs 600,000: no tax
- Rs 600,001 to 1,200,000: 1% of the amount over 600,000
- Rs 1,200,001 to 2,200,000: Rs 6,000 plus 11% over 1,200,000
- Rs 2,200,001 to 3,200,000: Rs 116,000 plus 23% over 2,200,000
- Rs 3,200,001 to 4,100,000: Rs 345,000 plus 30% over 3,200,000
- Above Rs 4,100,000: Rs 615,000 plus 35% over 4,100,000
These come straight from FBR Circular No 01 of 2025-26. Salary over Rs 600,000 a year is where the tax starts.
Where else does withholding tax apply?
Salary is just one place. The same idea runs through daily life:
- Bank profit on your savings account, taken by your bank under Section 151
- Dividends from shares or mutual funds, taken by the company
- Payments for contracts and services, taken by the person paying you under Section 153
- Prize bond and lottery winnings, taken by the state
- Property you buy or sell, taken at the registry
The FBR withholding tax rate card lists the rate for every one of these. The card is updated whenever the law changes.
Why filers pay far less than non-filers
This is where it gets important. Your rate depends on whether you file a tax return. People on the FBR Active Taxpayer List (ATL) pay the lower rate. People who have never filed pay two to three times more on many transactions.
A few examples from the current rate card. Bank profit: a filer is charged 15%, a non-filer 35%. Prize bond winnings: a filer pays 15%, a non-filer 30%. Cash you pull out of a bank above Rs 50,000 a day: a non-filer now pays 0.8%, up from 0.6% under the Finance Act 2025.
So the same money costs you more if you are not a filer. This is one clear reason to file your return even if your employer already takes tax.
It is an advance, not a double tax
Here is what most people miss. Withholding tax is not an extra charge on top of your income tax. It is an advance payment of it. When you file your annual return, every rupee taken out during the year is set against what you owe.
Sometimes more is deducted than you owe. That happens often. When it does, the FBR owes you a refund, and filing the return is the only way to get it back.
What if the person paying you does not deduct?
The law treats that seriously. If a withholding agent fails to take out and deposit the tax, the agent becomes personally liable for the full amount plus a 25% penalty. That is the rule, and it is why most companies deduct even when they would rather not.
What changed in 2025
The Finance Act 2025 moved a few rates. The tax on general services went from 11% to 15%. The tax on cash withdrawals by non-filers went from 0.6% to 0.8%. Pensions from a former employer are now taxable too, at 5% once they pass Rs 10 million a year for someone under 70. And a new withholding system started for online marketplaces, where the payment app or courier takes 1% to 2% at the point of sale.
What it means for you
If you see a deduction on your salary slip, that is normal. Keep the slip. It is proof of what you already paid. Missing only matters if you never file a return, because then you can never claim the money you overpaid. You file that return online through the FBR IRIS portal, and our guide to filing your income tax return in Pakistan walks you through it step by step.
For related money questions, read how to check your mobile tax or the step by step guide to paying PTA tax online. Browse more plain English answers on the Lexiber blog, or ask free on the Lexiber home page.
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