Understanding Your Income Tax Obligations for 2026-27
Start with the basics
Income tax in Pakistan is a federal levy, so the same salary slabs apply nationwide under the Income Tax Ordinance 2001. Your obligations for 2026-27 are set by the Finance Act 2026 (Federal Budget 2026-27). You need to know three things: your taxable income, the slab that applies, and what you must file.
The 2026-27 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 |
Allowances: mostly taxable
A common misconception is that allowances are tax-free. In reality, most of them (house rent, conveyance, utilities, mobile) are fully taxable. Two important reliefs remain under the Second Schedule:
- Medical allowance: exempt up to 10% of basic salary (Clause 139), but only where free medical treatment or health insurance is not separately provided.
- Employer provident fund: exempt up to the lower of 10% of basic or Rs 150,000 per year.
These rules are unchanged by the Finance Act 2026.
EOBI and social security
Under the EOBI Act 1976, the employer contributes 5% and the employee 1% of the minimum wage. The budget proposes a minimum wage of Rs 40,700.
A worked example
Take an employee with Rs 2,000,000 in annual taxable income. They fall in the 1,200,001–2,200,000 band: Rs 6,000 plus 11% of (2,000,000 − 1,200,000) = Rs 6,000 + Rs 88,000 = Rs 94,000 for the year.
Your filing duties
- File your annual income tax return with FBR.
- Appear on the Active Taxpayers List to access filer rates.
- Keep records of salary, allowances and deductions.
How Zaffre simplifies your obligations
Zaffre HRM from Zaffre Tech applies the 2026-27 FBR slabs on every payroll run and handles allowance taxability, the Clause 139 medical exemption, provident fund limits and EOBI. In Zaffre Axon this setup is kept in one place, so employees see the right take-home pay and employers stay compliant. You set the rules once and the system does the sums.
You can also check any salary at https://zaffreaxon.com/salary-tax-calculator.
References: Finance Act 2026 (Federal Budget 2026-27); Income Tax Ordinance 2001 (First and Second Schedules); EOBI Act 1976; FBR.
Book a demo
See how Zaffre Axon handles payroll tax for you. Book a demo with Zaffre Tech.