How pension tax is worked out
The calculator turns the pension into a yearly figure. The part up to Rs 10,000,000 is taxed at 0%, and the part above it at 5%. Sub-section (2A) of section 12 charges this as a final tax where the pension for the tax year exceeds ten million rupees.
What the law says
The proviso after the salaried table in clause (2) of Division I of Part I of the First Schedule, on printed page 509 of the edition amended to 30.06.2026, reads:
Provided that pension received by an individual from a former employer in a tax year, the rate of tax on such income shall be set out in the following Table namely: -
| S. No. | Description | Rate of Tax |
|---|---|---|
| 1. | Where the amount of pension received does not exceed rupees ten million | 0% of the amount |
| 2. | Where the amount of pension received exceeds rupees ten million | 5% of the amount exceeding rupees ten million |
The calculator applies this table with the figures below, which are the same as the table's rupees ten million and 5%:
| Yearly pension | Tax |
|---|---|
| Up to Rs 10,000,000 | 0% |
| Above Rs 10,000,000 | 5% of the amount above Rs 10,000,000 |
Sub-section (2A) of section 12, inserted by the Finance Act, 2025, adds two rules. Clause (i) says the pension is charged as a final tax at the rates in that proviso where the amount received by an individual from a former employer for a tax year exceeds ten million rupees, and that an individual who has attained the age of seventy years shall not be charged to tax on pension income. Clause (ii) says the pension of an individual who continues to work for the former employer or its associate is charged at the rates in clause (1) or (2) of Division I.
The proviso is in the editions amended to 31.07.2025 and 30.06.2026, so the calculator covers tax years 2026 (1 July 2025 to 30 June 2026) and 2027 (1 July 2026 to 30 June 2027). It is not in the edition amended to 30.06.2024, and this calculator does not cover tax year 2025 or earlier.
Points the text leaves open
Clause (i) of sub-section (2A) ties the final tax to pension that exceeds ten million rupees, while the proviso's table covers pension of any amount and sets 0% up to ten million. The calculator applies the table as printed, so pension up to Rs 10,000,000 shows no tax. The text also does not say at what point in the tax year the age of seventy must be reached, so the age option here simply switches the tax off.
Where the rates come from
Every rate is read from the Income Tax Ordinance, 2001 as consolidated by FBR. The rates on this page were last checked against the official text on 2026-09-26.
- Income Tax Ordinance, 2001, First Schedule, Part I, Division I, proviso after the salaried table in clause (2), printed page 509 (as amended to 2026-06-30) official file
- Income Tax Ordinance, 2001, section 12, sub-section (2A), pension (as amended to 2026-06-30) official file
- Income Tax Ordinance, 2001, edition amended to 31.07.2025, where the proviso first appears (as amended to 2025-07-31) official file
- Income Tax Ordinance, 2001, edition amended to 30.06.2024, which has no pension table (as amended to 2024-06-30) official file
Common questions
Is pension from a former employer taxable in Pakistan?
From tax year 2026, yes, but only on the part above Rs 10,000,000 in a tax year. The proviso to the salaried table in Division I of Part I of the First Schedule sets 0% on pension up to rupees ten million and 5% of the amount exceeding rupees ten million.
How much tax is due on a pension of Rs 12,000,000 a year?
Rs 100,000. The first Rs 10,000,000 is taxed at 0%, and the remaining Rs 2,000,000 is taxed at 5%. That works out to Rs 8,333 a month if the pension is paid evenly across the year.
Is there any pension tax for people aged 70 or over?
No. Sub-section (2A) of section 12 says that an individual who has attained the age of seventy years shall not be charged to tax on pension income.
What if I still work for the employer that pays my pension?
Then the 0% and 5% table does not apply. Sub-section (2A) of section 12 says the pension of an individual who continues to work for the former employer or its associate is taxed at the rates in clause (1) or (2) of Division I of Part I of the First Schedule, as the case may be. This calculator does not work out that case.
Does the calculator cover tax year 2025 or earlier?
No. The pension table is not in the edition of the Ordinance amended to 30.06.2024. It appears in the editions amended to 31.07.2025 and 30.06.2026, after sub-section (2A) of section 12 was inserted by the Finance Act, 2025, which also omitted the pension exemption in clause (8) of Part I of the Second Schedule. The calculator therefore offers tax years 2026 and 2027 only.