Tax on Pension Income in Pakistan (TY 2025-26)
Pakistan pension tax TY 2025-26 - government and private pension exemption, commutation lump sums, NPS / VPS contributions, and ATL filing for pensioners.
Worked example: Rs 75,000 per month
Annual income Rs 900,000 - here's how it would be taxed both ways under Finance Act 2025.
| Taxable income band | Rate | Income in band | Tax in band |
|---|---|---|---|
| Up to Rs 600,000 | 0% | Rs 600,000 | Rs 0 |
| Rs 600,001 – Rs 1,200,000 | 1% | Rs 300,000 | Rs 3,000 |
| Total slab tax | Rs 3,000 | ||
Pension is exempt under the Second Schedule
Monthly pension payments from a Pakistan government department, the armed forces, an autonomous body, or a private employer recognised under the Income Tax Rules are exempt from income tax under the Second Schedule Part I clauses 8–12. There is no slab tax, no surcharge, no Section 149 WHT. The pension lands in your bank net of any voluntary deductions (zakat, life-insurance premium) but no income tax is taken at source on the pension itself.
Commutation lump sums - also exempt
When you retire and commute a portion of your pension into a one-time lump sum, that lump-sum payment is also exempt under the same Second Schedule clauses, provided the pension scheme is approved under the rules. This applies equally to government commutation, gratuity from private recognised funds, and superannuation fund withdrawals. A clean pension + commutation event for a senior government officer can deliver PKR 5–10 million tax-free at retirement.
What pensioners do owe tax on
While the pension itself is exempt, other income heads earned by a pensioner are not. PSX dividends still face 15% Section 150 final tax. Bank profit on debt still attracts 15% Section 151 final tax. Rent from a Karachi flat hits Section 155 graduated slabs. PSEB freelance work as a consultant in retirement still benefits from 0.25% PSEB final tax. Property gains within five years of acquisition still trigger Section 37(1A) CGT. The exemption is narrow - it covers the pension, not the whole tax life.
Why pensioners should still file a return
Even when the pension is exempt and your only other income is bank deposits paying small interest, file your annual return. Reason: ATL status. Non-ATL pensioners pay 2× WHT on bank profit (35% non-filer vs 15% filer under Section 151), 2× on cash withdrawals over PKR 50,000, 2× on motor vehicle token tax, and 3× on property purchases. The premium for staying off the ATL costs many pensioners more than the small administrative effort of an annual NIL return.
Frequently asked questions
Is pension income taxable in Pakistan?
No. Pension from approved schemes (government, armed forces, recognised private funds) is exempt under Second Schedule Part I clauses 8–12. There is no slab tax on the pension itself.
Is the commutation lump sum exempt too?
Yes for approved schemes. One-time pension commutation and gratuity from recognised funds are exempt under the same Second Schedule clauses.
Do pensioners need to file an IRIS return?
Yes if they want to stay on the ATL. Non-ATL pensioners pay 2× WHT on bank profit, cash withdrawal, property, and vehicle transactions - the difference often dwarfs the filing effort.
Is bank profit taxed differently for pensioners?
No, the standard Section 151 rates apply - 15% (filer) or 35% (non-filer) as final tax on profit on debt from banks and savings certificates.
What about private company pensions?
Exempt if paid from a recognised superannuation/gratuity/provident fund. Unrecognised schemes lose the exemption - confirm your former employer's fund status before assuming exemption.