Did Budget 2026-27 change the tax on pension?

What does the law say?

The corpus holds the enacted Finance Act 2026, not the budget speech or the Finance Bill, so this page compares what the Act actually amended with the Income Tax Ordinance, 2001 as amended to 30 June 2026. The Act came into force on 1 July 2026, which is the start of tax year 2027.

Section 5 of the Finance Act 2026 carries the Income Tax amendments. For pensioners, three things matter:

Item	Did the Finance Act 2026 change it?
Section 12(2A), the pension rule inserted in 2025	No. Section 5 has no amendment to section 12.
Section 149(1A), deduction on pension above ten million rupees	No. Section 5 has no amendment to section 149.
Pension table (proviso to clause (2) of Division I)	No. Only the main table above the proviso was substituted.
Salaried slab table in clause (2) of Division I	Yes. Replaced in full.
Surcharge proviso in section 4AB	Yes. For individuals with salary income, “no surcharge shall be payable.”

What stayed the same for most pensioners?

Pension received by an individual from a former employer is still charged under the pension table for tax year 2027:

Pension received in the tax year	Rate of tax
Does not exceed ten million rupees	0% of the amount
Exceeds ten million rupees	5% of the amount exceeding ten million rupees

Section 12(2A)(i) still says an individual who has attained seventy is not charged on pension income. A pensioner who is not working for the former employer therefore sees no change in the pension rate between tax year 2026 and tax year 2027.

Who does the new slab table affect?

Section 12(2A)(ii) sends the pension of an individual “who continues to work for former employer or its associate” to the ordinary rates in clause (1) or (2) of Division I. Clause (2) applies where salary exceeds seventy-five per cent of taxable income. For those pensioners, the new table matters. The consolidated text shows both versions:

Taxable income	Tax year 2026 (Finance Act 2025 table)	Tax year 2027 (Finance Act 2026 table)
Up to Rs. 600,000	0%	0%
Rs. 600,001 to Rs. 1,200,000	1% of amount above Rs. 600,000	1% of amount above Rs. 600,000
Rs. 1,200,001 to Rs. 2,200,000	Rs. 6,000 + 11% above Rs. 1,200,000	Rs. 6,000 + 11% above Rs. 1,200,000
Rs. 2,200,001 to Rs. 3,200,000	Rs. 116,000 + 23% above Rs. 2,200,000	Rs. 116,000 + 20% above Rs. 2,200,000
Rs. 3,200,001 to Rs. 4,100,000	Rs. 346,000 + 30% above Rs. 3,200,000	Rs. 316,000 + 25% above Rs. 3,200,000
Rs. 4,100,001 to Rs. 5,600,000	Rs. 616,000 + 35% above Rs. 4,100,000	Rs. 541,000 + 29% above Rs. 4,100,000
Rs. 5,600,001 to Rs. 7,000,000	Rs. 616,000 + 35% above Rs. 4,100,000	Rs. 976,000 + 32% above Rs. 5,600,000
Above Rs. 7,000,000	Rs. 616,000 + 35% above Rs. 4,100,000	Rs. 1,424,000 + 35% above Rs. 7,000,000

Worked example (illustrative figures)

Case 1: a re-hired pensioner. Imran retired from a Faisalabad textile mill and was taken back by the same mill. He receives a pension of Rs. 1,200,000 and a salary of Rs. 2,400,000 in the year, Rs. 3,600,000 in all, with no other income. All of it is salary, so clause (2) applies.

1. Tax year 2026 table: Rs. 346,000 + 30% x (Rs. 3,600,000 - Rs. 3,200,000) = Rs. 346,000 + Rs. 120,000 = Rs. 466,000.
2. Tax year 2027 table: Rs. 316,000 + 25% x (Rs. 3,600,000 - Rs. 3,200,000) = Rs. 316,000 + Rs. 100,000 = Rs. 416,000.
3. Difference: Rs. 466,000 - Rs. 416,000 = Rs. 50,000 less in tax year 2027.

Case 2: an ordinary pensioner. Shabana, 65, receives Rs. 1,200,000 of pension a year and does not work. Row 1 of the pension table applies in both years: Rs. 0. The budget made no difference to her.

What about the surcharge?

Before the Finance Act 2026, the proviso to section 4AB charged salaried individuals a surcharge of nine percent of Division I tax where income exceeded ten million rupees. The Finance Act 2026 substituted that wording with “no surcharge shall be payable” for an individual deriving income chargeable under the head “Salary”. Whether the old nine percent surcharge reached the 5% pension tax in tax year 2026 is not spelled out in the text, so this page does not settle it. For tax year 2027 the proviso is plain.

Common mistakes

• Treating news about new slabs as a change to pension tax. The pension table was not touched.
• Applying the salaried slabs to every pension. They apply to pension only where section 12(2A)(ii) does, that is where you still work for the former employer or its associate.
• Relying on Finance Bill proposals. Only the enacted Act changes the law; this page reads the Act.

What to check in the official text

Read section 5 of the Finance Act 2026, especially the amendment to section 4AB and the substitution of the clause (2) table in the First Schedule. Then read section 12(2A) and the proviso to clause (2) of Division I of Part I of the First Schedule in the official consolidated PDF amended to 30 June 2026. Our copy of the Finance Act 2026 was transcribed from page images, so check figures against the official PDF before relying on them.