How the deduction is worked out
Section 154A(1) requires every authorised dealer in foreign exchange to deduct tax at the time of realising foreign exchange proceeds from exports of computer software, IT services or IT enabled services by a PSEB-registered exporter, services or technical services rendered outside Pakistan or exported from Pakistan, certain royalties and fees earned by a resident company, construction contracts executed outside Pakistan, foreign commission due to an indenting commission agent, and other services the Board notifies. The rate is a flat percentage of the proceeds, with no slabs.
Division IVA rates
| Type of receipts | Rate of tax |
|---|---|
| Export proceeds of computer software or IT services or IT enabled services by persons registered with the Pakistan Software Export Board | 0.25% of proceeds, tax years 2024 up to 2029 |
| Any other case | 1% of proceeds |
When the deduction is the final tax
Section 154A(2) makes the deduction a final tax on the income from these transactions on fulfilment of these conditions:
- (a) the return has been filed;
- (b) withholding tax statements for the relevant tax year have been filed, if required under the Ordinance;
- (c) sales tax returns under Federal or Provincial laws have been filed, if required, except that this condition does not apply to an exporter in clause (a), the PSEB-registered IT exporter;
- (d) no credit for foreign taxes paid is allowed.
Under section 154A(3), sub-section (2) does not apply to a person who does not fulfil these conditions or who opts not to be subject to final taxation. The option is exercised every year at the time of filing the return under section 114.
Where the rates come from
Every rate is read from the Income Tax Ordinance, 2001 as consolidated by FBR. The rates on this page were last checked against the official text on 2026-09-26.
- Income Tax Ordinance, 2001, section 154A, export of services (as amended to 2026-06-30) official file
- Income Tax Ordinance, 2001, First Schedule, Part III, Division IVA, printed page 547 (as amended to 2026-06-30) official file
- Income Tax Ordinance, 2001, section 114, return of income, where the option is exercised (as amended to 2026-06-30) official file
- Income Tax Ordinance, 2001, First Schedule, Part I, Division I, clause (1), for the comparison (as amended to 2026-06-30) official file
Common questions
How much tax is deducted on freelance income sent from abroad?
Under section 154A, the authorised dealer in foreign exchange deducts tax when it realises the foreign exchange proceeds. Division IVA of Part III of the First Schedule sets the rate at 0.25% of proceeds for exporters of computer software, IT services or IT enabled services registered with the Pakistan Software Export Board, for tax years 2024 up to 2029, and 1% of proceeds in any other case.
When is the section 154A deduction a final tax?
Section 154A(2) makes the deduction a final tax on the income from these transactions once four conditions are met: the return has been filed; withholding tax statements for the tax year have been filed if required; sales tax returns under Federal or Provincial laws have been filed if required, a condition that does not apply to a PSEB-registered IT exporter; and no credit for foreign taxes paid is allowed.
Can an exporter of services choose not to be taxed under the final tax regime?
Yes. Section 154A(3) says sub-section (2) does not apply to a person who does not fulfil the conditions or who opts not to be subject to final taxation. The option is exercised every year at the time of filing the return under section 114. The income is then taxed under the normal rules.
Until which year does the 0.25% PSEB rate apply?
The Division IVA table in the edition amended to 30 June 2026 gives 0.25% for tax years 2024 up to tax year 2029. The end year was 2026 until the Finance Act, 2026 substituted 2029.
Which exchange rate does the calculator use for dollars?
None of its own. Tax is deducted from the proceeds realised in rupees, so the calculator uses only the exchange rate you type in. Leave the dollar option off and enter the rupee amount from your bank credit advice if you have it.