Pensioners and senior citizens

Pension, commutation, retirement benefits and relief for older taxpayers. Each answer below explains one point in plain words, works through an example, and links the exact section of the law it relies on.

• Is army, government and private-company pension all taxed the same way now?The Finance Act 2025 omitted the separate exemption for armed forces and government pension. Section 12(2A) now applies to pension from any former employer.
• Did Budget 2026-27 change the tax on pension?The Finance Act 2026 replaced the salaried slab table and dropped the salaried surcharge, but left section 12(2A) and the pension rate table as they were.
• Do I have to file an income tax return if my only income is pension?A pension alone does not settle it. Section 114 also looks at final tax, recent tax charges, property, cars over 1000 CC and an NTN. Section 115 gives relief.
• Does a pensioner with rent or other income have to pay quarterly advance tax under section 147?Section 147 leaves out salary taxed under section 149 and final-tax income, and spares an individual whose other assessed income is under Rs. 1 million.
• Do I show exempt pension, commutation and gratuity in my return and wealth statement?Section 10 counts exempt income in total income, and section 116 needs a wealth reconciliation, so an exempt lump sum explains why your assets jumped.
• Is a golden handshake or early retirement package taxable, and can it be taxed at a lower average rate?A golden handshake is salary under section 12, but you can elect to tax it at your three-year average rate under section 12(6). Worked early retirement example.
• Is a golden handshake or early retirement package taxable, and can it be taxed at a lower average rate?A golden handshake is salary under section 12(2)(e)(iii). Section 12(6) lets you elect the average rate of your three prior tax years, by the 12(8) deadline.
• Is government, armed forces or private-company pension taxed differently?Since the Finance Act 2025, government, armed forces and private pensions share one rate table. Differences remain for commutation, gratuity and LPR.
• Are pension arrears or a lump sum of back pension taxed at a higher rate?Arrears count in the year received and can push pension past Rs. 10 million. Section 12(7) lets an employee elect earlier year rates for salary arrears.
• Is a benevolent fund grant or superannuation payment received by the family after a death taxable?Benevolent grants under the 1969 Central Act, approved superannuation fund payments on death, and gratuity paid to heirs within clause (13) limits are exempt.
• Is a pension I receive from abroad taxable if I live in Pakistan?A UK, US or Gulf pension paid from abroad is foreign-source. Section 11(5) counts it for a resident, subject to the returning expatriate and UN exemptions.
• Is my provident fund balance taxable when I retire from a recognised fund?A recognised provident fund balance paid at retirement is excluded from total income. Employer contributions and interest over yearly limits are taxed instead.
• Is commuted pension (the lump sum at retirement) taxable?Commutation from Government or a Board-approved pension scheme is fully exempt under clause (12). Other commutation is exempt only up to the clause (13) limits.
• Is the pension paid to the family of a government servant or soldier who died in service exempt?Family pension after a public servant or soldier dies in service is exempt, and so are Shaheed family pensions and children's allowance under clause (16).
• Is family pension received by a widow taxable?Which family pensions the Second Schedule exempts, how section 12(2A) is worded for other family pensions, and a widow's relief from some filing triggers.
• Is GP Fund money received at retirement taxable, including the interest?Clause (22) of the Second Schedule exempts any payment from a provident fund covered by the Provident Funds Act, 1925. What it means for GP Fund and its profit.
• Is gratuity taxable when I retire from government or a private company?Government and approved-fund gratuity are exempt. Other private gratuity is exempt only up to Rs. 300,000 or Rs. 75,000 under clause (13). Worked example.
• Is LPR encashment taxable at retirement?Clause (19) exempts LPR encashment for Armed Forces members and federal or provincial government employees. For other employees, leave encashment stays salary.
• I am over 70. Do I pay any tax on my pension at all?Section 12(2A)(i) says a person who has reached seventy is not charged to tax on pension income, and section 149(1A) limits deduction to those below seventy.
• I am over 70, do I pay any tax on my pension at all?Section 12(2A) says a person who has attained seventy is not charged tax on pension income. What that covers, what it does not, and how deduction changes.
• Is my pension taxable in Pakistan after the Finance Act 2025 changes, and what applies in tax year 2027?Finance Act 2025 ended the old pension exemptions, but pension from a former employer is taxed at 0% up to Rs. 10 million a year in tax year 2027.
• Is my pension taxable in Pakistan after the Finance Act 2025 changes?Pension counts as salary, but for tax year 2027 pension from a former employer is taxed at 0% up to Rs. 10 million a year and 5% only on the amount above that.
• Is my provident fund or GP Fund balance taxable when I retire?How the Second Schedule exempts a recognised provident fund balance and payments from a fund under the Provident Funds Act 1925, and what the yearly limits are.
• Is the tax on Behbood or Pensioners' Benefit Account profit final, or do I pay more when I file?Behbood and Pensioners' Benefit Account profit is outside the final section 7B regime. It joins taxable income at slab rates, with tax capped at 5% of it.
• Is there still a 50% tax reduction or a separate tax slab for senior citizens aged 60 or above?The 50% tax cut for taxpayers aged 60 or more was omitted in 2014. Tax year 2027 slabs have no age rates; the only age rule left is the pension rule at 70.
• Can I transfer my provident fund to a pension fund at retirement without paying tax?Clause (23C) exempts later withdrawals of a provident fund balance moved into an approved pension fund, but section 63(3) gives no tax credit for the transfer.
• Do I have to file an income tax return if my only income is pension?Section 114 looks past the pension rate: an NTN, a car above 1000 CC, property or recent tax can each require a return. Section 115 relieves widows.
• If I get pension and a salary from a new job, how is each taxed?Pension from a former employer uses its own table, 0% up to Rs. 10 million, while salary from an unrelated new employer is taxed at tax year 2027 salary slabs.
• I retired but still work, either on contract for my old employer or in a new job. How is my pension taxed?Working for your former employer or its associate moves your pension onto slab rates under section 12(2A)(ii). A job with an unrelated employer does not.
• I retired but now work on contract for the same company. Is my pension taxed?If you keep working for your former employer or its associate, section 12(2A)(ii) taxes your pension at normal slab rates instead of the 0% pension table.
• Do I have to show exempt pension, commutation and gratuity in my return and wealth statement?Exempt retirement money still explains how your assets grew. Section 116 needs a wealth reconciliation and section 111 taxes assets with no explained source.
• What tax applies to profit on Behbood Savings Certificates and the Pensioners' Benefit Account, and is it final?Behbood and Pensioners' Benefit Account profit is not taxed at source or under section 7B. It is taxed at normal slab rates, capped at 5% of the profit.
• What tax is charged on Behbood Savings Certificate and Pensioners' Benefit Account profit?Behbood Savings Certificate and Pensioners' Benefit Account profit is taxed at normal slab rates, but the tax cannot exceed 5% of the profit in tax year 2027.
• Is benevolent fund or group insurance money received by the family after a death taxable?The Second Schedule exempts benevolent grants under the 1969 Act and heirs' gratuity within limits, and section 7G life insurance tax excludes death payouts.
• How much tax is charged on a pension above Rs 10 million a year, and is it on the whole pension or only the excess?For tax year 2027 the First Schedule charges 5% only on the part of a pension above Rs. 10 million a year, as a final tax. The first Rs. 10 million is at 0%.
• How much tax is charged on a pension above Rs 10 million a year, and who deducts it?For tax year 2027, pension above Rs. 10 million is taxed at 5% of the excess as a final tax, deducted by the payer under section 149(1A), with a worked example.
• How is money withdrawn from a Voluntary Pension Scheme taxed at or before retirement?Up to 50% of a VPS balance is exempt at retirement, disability or death. Early withdrawals and anything above 50% are taxed at the section 12(6) average rate.
• My company's provident fund is not recognised. How is my PF withdrawal taxed?Section 12(2)(e)(iv) taxes a payout from an unrecognised provident fund as salary, except the repayment of your own contributions, unlike a recognised fund.
• I receive two pensions. Are both exempt or only one?The rule exempting only the higher of two pensions was omitted in 2025. Pension is now taxed at 0% up to Rs. 10 million, but the law is silent on combining two.
• I receive two pensions. Are both covered, or only one?The 2025 Finance Act removed the rule that exempted only the higher of two pensions. Section 12(2A) now applies per former employer, and is silent on combining.
• Is the tax on a pension above Rs 10 million deducted at source, or do I pay it with my return?Section 149(1A) makes the pension payer deduct tax at payment on the part of a pension above Rs. 10 million for pensioners below seventy. A rate gap remains.