This bulletin provides an overview of the main employment and individual income tax measures proposed in Finance Bill 2026, which currently awaiting approval from the National Assembly and subsequent Presidential assent.
The Finance Bill 2026 proposes measures to optimize revenue collection, simplify tax administration and redistribute the tax burden, affecting both salaried and non-salaried individuals. If approved, the legislation will be enforced from July 1, 2026.
Decrease in tax rates for salaried individuals
The Finance Bill introduces revisions to the tax slab rates for salaried individuals. While the maximum tax rate for salaried individuals remains unchanged at 35%, adjustments have been made within various brackets. Conversely, the maximum rate for non-salaried individuals remains 45%.
The following tables detail the proposed new tax bands and rates for salaried individuals:
| Sr No. | Taxable Income | Existing Rates | Proposed Rates |
| 1 | Where taxable income does not exceed Rs. 600,000 | 0% | 0% |
| 2 | Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 1,200,000 | 1% of the amount exceeding Rs. 600,000 | 1% of the amount exceeding Rs. 600,000 |
| 3 | Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 2,200,000 | Rs. 6,000 + 11% of the amount exceeding Rs. 1,200,000 | Rs. 6,000 + 11% of the amount exceeding Rs. 1,200,000 |
| 4 | Where taxable income exceeds Rs. 2,200,000 but does not exceed Rs. 3,200,000 | Rs. 116,000 + 23% of the amount exceeding Rs. 2,200,000 | Rs. 116,000 + 20% of the amount exceeding Rs. 2,200,000 |
| 5 | Where taxable income exceeds Rs. 3,200,000 but does not exceed Rs. 4,100,000 | Rs. 346,000 + 30% of the amount exceeding Rs. 3,200,000 | Rs. 316,000 + 25% of the amount exceeding Rs. 3,200,000 |
| 6 | Where taxable income exceeds Rs. 4,100,000 but does not exceed Rs. 5,600,000 | Rs. 616,000 + 35% of the amount exceeding Rs. 4,100,000 | Rs. 541,000 + 29% of the amount exceeding Rs. 4,100,000 |
| 7 | Where taxable income exceeds Rs. 5,600,000 but does not exceed Rs. 7,000,000 | Rs. 616,000 + 35% of the amount exceeding Rs. 4,100,000 | Rs. 976,000 + 32% of the amount exceeding Rs. 5,600,000/- |
| 8 | Where taxable income exceeds Rs. 7,000,000 | Rs. 616,000 + 35% of the amount exceeding Rs. 4,100,000 | Rs. 1,424,000 + 35% of the amount exceeding Rs. 7,000,000/- |
Elimination of surcharge under section 4AB:
In addition to the above, it is proposed that, in respect of individuals deriving income chargeable under the head “Salary”, the 9% surcharge under section 4AB on taxable income exceeding ten million rupees in a tax year be withdrawn.
For salaried individuals in the highest slab, removal of the 9% surcharge reduces the surcharge-adjusted top marginal tax impact from 38.15% to 35%.
Reduction in the rate of super tax on high earning persons under section 4C:
A super tax had been imposed from the tax year 2022 and onwards at the specified rates on the income of every high earning person.
The Finance Bill 2026 has proposed that the super tax be abolished for persons (other than Banks, Oil & Gas Exploration Companies, Persons selling Fertilizers) having ‘income’ not exceeding Rs 500 million, which is currently subject to tax at the rates ranging from 1% to 7.5%.
The updated rates are as follows:
| Sr No. | Income under section 4C | For tax year 2026 – Existing | Proposed for the tax year 2027 |
| 1 | Where income does not exceed Rs. 150 million | 0% |
N/A |
| 2 | Where income exceeds Rs. 150 million but does not exceed Rs. 200 million | 1% | |
| 3 | Where income exceeds Rs. 200 million but does not exceed Rs. 250 million | 1.5% | |
| 4 | Where income exceeds Rs. 250 million but does not exceed Rs. 300 million | 2.5% | |
| 5 | Where income exceeds Rs. 300 million but does not exceed Rs. 350 million | 3.5% | |
| 6 | Where income exceeds Rs. 350 million but does not exceed Rs. 400 million | 5.5% | |
| 7 | Where income exceeds Rs. 400 million but does not exceed Rs. 500 million | 7.5% | |
| 8 | Where income exceeds Rs. 500 million | 10% | 8% |
Deletion of section 7E – deemed income:
Section 7E of the Income Tax Ordinance, 2001 imposed tax on a deemed income from certain immovable properties by treating such properties as generating notional income equal to 5% of their fair market value. The deemed income was taxed at 20%, resulting in an effective annual tax liability of approximately 1% of the property’s fair market value, irrespective of whether the property generated any actual income.
In line with the recent judgment of the Federal Constitutional Court of Pakistan (FCCP), which declared Section 7E to be ultra vires, the Finance Bill proposes the deletion of the provision. Consequently, the deemed-income taxation regime applicable to specified immovable properties will cease to apply.
Withholding tax on gain on disposal of certain debt securities:
It is proposed that every custodian of debt securities, including a banking company maintaining an Investor Portfolio Securities (IPS) account, shall be required to deduct tax at the increased rate of 20% on the gross amount of capital gains arising from the disposal of such securities. This would apply to disposals other than those effected through a registered stock exchange and settled through the National Clearing Company of Pakistan Limited (NCCPL).
Currently, the applicable withholding tax rate on such capital gains is 15%, which is proposed to be enhanced to 20%.
Taxation of certain payments by life insurance and family takaful businesses – section 7G:
Currently, pay-outs, benefits, surrender values, maturity proceeds and similar amounts received under life insurance policies, family takaful certificates, plans or similar arrangements are generally not subject to tax, nor is there any specific withholding tax mechanism applicable to such payments.
The Finance Bill 2026 proposes the introduction of Section 7G, to impose tax on individuals receiving such amounts. The taxable amount would be determined as the gross pay-out or benefit reduced by the aggregate premiums or contributions paid by the policyholder or participant. The resulting amount would be subject to tax at the following rates:
| Sr No. | Description | Proposed Rate of Tax |
| 1 | Where payout or benefit is made within one year from the date of issuance of the life insurance policy, family takaful certificate or plan | 15% |
| 2 | Where payout or benefit is made after one year but before completion of seven years from the date of issuance of the life insurance policy, family takaful certificate or plan | 10% |
To facilitate collection of the tax, a new withholding provision, is proposed to be introduced with effect from July 1, 2026. Under this provision, every life insurance company, family takaful operator or window takaful operator making such payments to an individual would be required to deduct tax at the prescribed rates at the time of payment, calculated on the same basis as the charge under Section 7G.
In the absence of a specific exclusion from the provisions of the Tenth Schedule, the withholding tax rates would be increased by 100% where the recipient is not appearing on the Active Taxpayers List (ATL).
The charge under section 7G, and the corresponding obligation to withhold under section 151B, would not apply where the payout or benefit is made:
The tax so deducted is proposed to be treated as final tax on the income of the person arising from such payout or benefit.
Advance tax on purchase and sale of immovable property – section 236K and 236C:
Advance tax on the transfer of immovable property is collected from both buyers and sellers at slab-based rates, depending on the value of the property. The existing rates are as follows, which are proposed to be amended:
Existing advance tax on sale of immovable property
|
Sr No. |
Gross consideration received |
Persons appearing in ATL | Persons appearing in ATL who filed returns after due date |
Persons not appearing in ATL |
| 1 | Up to Rs. 50 million | 4.5% | 7.5% |
11.5% of the gross amount of consideration received |
| 2 | From Rs. 50 million to Rs. 100 million | 5% | 8.5% | |
| 3 | Exceeding Rs. 100 million | 5.5% | 9.5% |
Existing advance tax on purchase of immovable property
|
Sr No. |
Fair Market Value |
Persons appearing in ATL | Persons appearing in ATL who filed returns after due date |
Persons not appearing in ATL |
| 1 | Up to Rs. 50 million | 1.5% | 4.5% | 10.5% |
| 2 | From Rs. 50 million to Rs. 100 million | 2% | 5.5% | 14.5% |
| 3 | Exceeding Rs. 100 million | 2.5% | 6.5% | 18.5% |
The Finance Bill 2026 proposes to replace the current slab-based regime with a uniform withholding structure. Under the revised framework, sellers will be subject to advance tax at 2.75% of the consideration received, while buyers will be subject to tax at 1.25% of the fair market value of the property.
The proposal further seeks to withdraw the enhanced withholding rates applicable to Active Taxpayers List (ATL) filers who file returns after the due date, thereby removing the existing categorisation based on filing timelines.
Reduction in tax on foreign payments through cards – section 236Y:
The Finance Bill 2026 proposes a reduction in the rate of advance tax on foreign remittances made through debit, credit, and prepaid cards from 5% to 0.5%.
Amendments in Capital Value Tax (CVT):
CVT on foreign assets of resident individuals where the aggregate value exceeded Rs. 100 million on the last day of the tax year is currently chargeable at 1% of value.
The Finance Bill 2026 proposes to abolish this levy on foreign assets by omitting the relevant charging, valuation, definition and rate provisions.
Enhancement in Active Taxpayer’s List (ATL) Surcharge:
Where an income tax return is not filed within the prescribed due date, the Finance Bill proposes an upward revision in the surcharge payable for inclusion in the Active Taxpayers List (ATL).
The revised surcharge structure is proposed as follows:
| Person | Existing ATL Surcharge | Proposed ATL Surcharge |
| Individual | Rs. 1,000 | Rs. 25,000 |
| AOP | Rs. 10,000 | Rs. 50,000 |
| Company | Rs. 20,000 | Rs. 100,000 |
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