Budget 2026-27: What Salaried Employees Should Know
Your pay slip in 2026-27
If you draw a salary, the Finance Act 2026 (Federal Budget 2026-27) decides your take-home pay from 1 July 2026. Income tax on salary is federal, so the same slabs apply nationwide. Here is what every employee should understand before the new tax year begins.
The salary tax slabs
| Annual taxable income (Rs) | Tax |
|---|---|
| Up to 600,000 | 0% |
| 600,001–1,200,000 | 1% over 600,000 |
| 1,200,001–2,200,000 | 6,000 + 11% over 1,200,000 |
| 2,200,001–3,200,000 | 116,000 + 20% over 2,200,000 |
| 3,200,001–4,100,000 | 316,000 + 25% over 3,200,000 |
| 4,100,001–5,600,000 | 541,000 + 29% over 4,100,000 |
| 5,600,001–7,000,000 | 976,000 + 32% over 5,600,000 |
| Above 7,000,000 | 1,424,000 + 35% over 7,000,000 |
Which allowances are taxed
- Fully taxable: house rent, conveyance, utilities, mobile and most cash allowances are added to your taxable salary.
- Medical allowance: exempt up to 10% of basic salary under Clause 139 of the Second Schedule, but only if your employer does not separately provide free medical treatment or health insurance. This clause is unchanged by the Finance Act 2026.
- Provident fund: employer contributions are exempt up to the lower of 10% of basic or Rs 150,000 a year (Rs 12,500 a month).
A worked example
Take an employee with Rs 2,000,000 annual taxable income. Tax is Rs 6,000 plus 11% of (2,000,000 − 1,200,000) = Rs 6,000 + Rs 88,000 = Rs 94,000 for the year. If basic salary is structured correctly, so that the medical and provident fund exemptions apply in full, the taxable base can come down legitimately.
Other changes that may reach your wallet
- Advance tax on foreign payments via debit, credit or prepaid cards is cut from 5% to 0.5%, which helps with online subscriptions and travel.
- Capital Value Tax on resident Pakistanis' foreign assets is abolished.
- EOBI continues at 5% employer plus 1% employee of the minimum wage, with the minimum wage proposed at Rs 40,700.
Check your own number
Use the Zaffre Axon salary tax calculator at https://zaffreaxon.com/salary-tax-calculator to see your monthly deduction. An accurate pay slip depends on correct slab logic, and that is where employers use Zaffre. Zaffre HRM, part of the Zaffre Axon platform from Zaffre Tech, applies FBR slabs, allowance taxability, provident fund limits and EOBI across payroll automatically, so your deductions are right the first time and your employer stays compliant. Zaffretech and Zaffreaxon clients update these rates centrally, once.
References: Finance Act 2026 (Federal Budget 2026-27); Income Tax Ordinance 2001, First Schedule Part I and Second Schedule Clause 139; EOBI Act 1976; FBR.
Book a demo of Zaffre HRM to see compliant, slab-accurate payroll in action.