Understanding the 2024-25 Income Tax Rates in Pakistan: What You Need to Know

Income tax is levied on individuals and businesses in Pakistan based on their taxable income. Taxable income is the total income earned during a tax year, minus any deductions and exemptions allowed under the tax laws. Pakistan’s income tax rates are progressive, meaning higher levels of income are taxed at higher rates. The recent federal budget for the fiscal year 2024-25 has introduced some significant changes to the income tax brackets for employed individuals, effective from July 1, 2024.

New Income Tax Brackets for 2024-25

Here’s a detailed breakdown of the revised income tax slabs for salaried individuals:

1. Income up to Rs. 600,000: 0% income tax rate.
2. Income from Rs. 600,001 to Rs. 1,200,000: 5% of the amount exceeding Rs. 600,000.
3. Income from Rs. 1,200,001 to Rs. 2,200,000: Rs. 30,000 + 15% of the amount exceeding Rs. 1,200,000.
4. Income from Rs. 2,200,001 to Rs. 3,200,000: Rs. 180,000 + 25% of the amount exceeding Rs. 2,200,000.
5. Income from Rs. 3,200,001 to Rs. 4,100,000: Rs. 430,000 + 30% of the amount exceeding Rs. 3,200,000.
6. Income above Rs. 4,100,000: Rs. 700,000 + 35% of the amount exceeding Rs. 4,100,000.

Impact of the New Tax Rates

The revised tax brackets will have a significant impact on the disposable income of salaried individuals. Here’s a closer look at what these changes mean:

1. Income up to Rs. 600,000: Tax-Free

Individuals earning up to Rs. 600,000 annually will continue to enjoy a 0% income tax rate. This threshold ensures that low-income earners are not burdened by income tax, promoting financial stability for this group.

2. Income from Rs. 600,001 to Rs. 1,200,000: Moderate Tax Rate

For incomes in this range, the tax rate is set at 5% of the amount exceeding Rs. 600,000. For example, if an individual earns Rs. 900,000, the taxable amount is Rs. 300,000, and the tax payable will be Rs. 15,000 (5% of Rs. 300,000).

3. Income from Rs. 1,200,001 to Rs. 2,200,000: Increased Tax Obligation

Individuals in this bracket will pay a base tax of Rs. 30,000 plus 15% of the amount exceeding Rs. 1,200,000. For instance, an income of Rs. 1,500,000 will result in a tax of Rs. 75,000 (Rs. 30,000 + 15% of Rs. 300,000).

4. Income from Rs. 2,200,001 to Rs. 3,200,000: Higher Progressive Tax

In this category, the tax rate is significantly higher. A base tax of Rs. 180,000 is charged plus 25% of the amount exceeding Rs. 2,200,000. For example, if an individual earns Rs. 2,500,000, the tax payable will be Rs. 255,000 (Rs. 180,000 + 25% of Rs. 300,000).

5. Income from Rs. 3,200,001 to Rs. 4,100,000: Substantial Taxation

Here, the tax is Rs. 430,000 plus 30% of the amount exceeding Rs. 3,200,000. For an income of Rs. 3,500,000, the tax would be Rs. 520,000 (Rs. 430,000 + 30% of Rs. 300,000).

6. Income above Rs. 4,100,000: Highest Tax Bracket

For those earning more than Rs. 4,100,000, the tax is Rs. 700,000 plus 35% of the amount exceeding Rs. 4,100,000. An income of Rs. 5,000,000 will attract a tax of Rs. 1,015,000 (Rs. 700,000 + 35% of Rs. 900,000).

Planning for the Future

With these new tax brackets coming into effect from July 1, 2024, it’s crucial for individuals and businesses to plan their finances accordingly. Ensuring compliance with the new tax rates will help avoid penalties and make the most of any available deductions and exemptions.

Why Understanding Tax Brackets is Important

Grasping the nuances of the income tax system helps in better financial planning and tax-saving strategies. Knowing the exact tax liability can aid in efficient salary structuring, investment planning, and overall financial management.