I am a salaried doctor who also runs an evening clinic. How are both incomes taxed in one return?

A doctor who is paid a salary by a hospital and also sees private patients in the evening has income under two heads. The Income Tax Ordinance, 2001 computes each head separately, adds them together, and then applies a single rate table to the total. The share of salary in that total decides which table it is.

What does the law say?

Section 11: separate heads. All income is classified under five heads, including Salary and Income from Business. Section 11(2) says income under each head is the amounts chargeable under that head less the deductions allowed for that head.

Section 12: the hospital pay. Section 12(1) charges salary received by an employee under the head Salary. Section 12(2) defines salary as “any amount received by an employee from any employment”, including pay, allowances, perquisites and fees received as an employee.

Section 18: the clinic. Section 18(1)(a) charges the profits and gains of any business under the head Income from Business. A private practice is a business because the Ordinance defines business to include a profession.

The First Schedule: one table, chosen by the 75% test. Clause (2) of Division I, Part I applies where “the income of an individual chargeable under the head ‘salary’ exceeds seventy-five per cent of his taxable income”. In every other case the individual falls under clause (1), the table for individuals other than salaried individuals.

Section 149: what the employer deducts. The person paying salary must deduct tax at the employee’s average rate, computed on the estimated income chargeable under the head Salary for the year. Section 149(1) lets the employer adjust for tax withheld from the employee under other heads, after obtaining documentary evidence.

How does it work in practice?

1. Work out salary for the year from the employer’s records.
2. Work out clinic profit: fees received less the clinic’s allowable expenses.
3. Add the two, with any other income, to reach taxable income.
4. Divide salary by taxable income. If the result is more than 75%, use the clause (2) table. If it is 75% or less, use clause (1).
5. Apply that table to the whole taxable income.
6. Subtract the tax the employer deducted under section 149, and any other tax deducted or paid in advance that is creditable. The balance is payable with the return.

Worked example (illustrative figures)

The figures below are invented. The rates are the tax year 2027 rates from Division I.

Case A: a large clinic. Dr. Bilal Ahmed is a medical officer at a hospital in Multan with salary of Rs. 2,400,000. His evening clinic makes a profit of Rs. 1,200,000.

1. Taxable income: Rs. 2,400,000 + Rs. 1,200,000 = Rs. 3,600,000.
2. Salary share: Rs. 2,400,000 ÷ Rs. 3,600,000 = 66.7%. That is not more than 75%, so clause (1) applies.
3. Clause (1) slab over Rs. 3,200,000: Rs. 650,000 + 40% of Rs. 400,000 = Rs. 650,000 + Rs. 160,000 = Rs. 810,000.
4. Assume the employer computed its section 149 deduction on salary alone, using the clause (2) table: Rs. 116,000 + 20% of Rs. 200,000 = Rs. 156,000.
5. Balance with the return: Rs. 810,000 minus Rs. 156,000 = Rs. 654,000.

Case B: a small clinic. Same salary, but clinic profit is Rs. 600,000.

1. Taxable income: Rs. 3,000,000.
2. Salary share: Rs. 2,400,000 ÷ Rs. 3,000,000 = 80%. That is more than 75%, so clause (2) applies.
3. Clause (2) slab over Rs. 2,200,000: Rs. 116,000 + 20% of Rs. 800,000 = Rs. 116,000 + Rs. 160,000 = Rs. 276,000.
4. Balance after the same Rs. 156,000 employer deduction: Rs. 120,000.

In Case A, the extra Rs. 600,000 of clinic profit moved the whole income onto the steeper table, which is why the balance rises far more than the clinic profit alone would suggest.

What if …?

What if my salary is exactly 75% of taxable income? Clause (2) requires salary to exceed seventy-five per cent. At exactly 75%, clause (1) applies.

What if my taxable income is above Rs. 10 million? Section 4AB, printed within section 4, adds a ten percent surcharge for individuals whose taxable income exceeds Rs. 10 million. Its proviso says no surcharge is payable by “an individual deriving income chargeable under the head ‘Salary’”. The text does not say whether that relief covers someone whose income is partly salary and partly business. The law is unclear on this point for mixed-income individuals, and this page does not resolve it.

What if the hospital pays me per patient rather than a salary? Whether you are an employee or an independent professional for that work changes whether section 149 or the withholding on professional fees applies. That question is covered on the visiting consultant page in this category.

Common mistakes

• Splitting the tables. Salary is not taxed on one table and the clinic on another. One table covers the whole taxable income.
• Treating the employer’s deduction as the final tax. Section 149 is based on salary only. It does not reflect clinic income.
• Setting clinic expenses against salary. Deductions belong to the head they relate to under section 11(2).
• Rounding the 75% test. A salary share of 75.0% is not more than 75%.

What to check in the official text

Read clauses (1) and (2) of Division I, Part I of the First Schedule in the official PDF, then sections 11, 12, 18 and 149. Check the surcharge wording in section 4AB within section 4. Any service rules that limit private practice by government doctors are outside this corpus and are not covered here.