How is tax worked out if I have a local salaried job and also freelance on the side?

A salaried job and foreign freelance work are taxed on two separate tracks, as long as the freelance deduction stays a final tax. The salary goes through the slab table. The freelance proceeds carry the flat rate the bank deducts. The two meet only if you opt out of final taxation or fail its conditions.

What does the law say?

Salary. Section 12 charges amounts received by an employee from employment under the head “Salary”. Rates are in Division I of Part I of the First Schedule. Clause (2) of that Division applies where “the income of an individual chargeable under the head ‘salary’ exceeds seventy-five per cent of his taxable income”. Clause (1) sets a separate, steeper table for other individuals.

Freelance proceeds. Section 154A requires the bank to deduct tax when it realises foreign exchange proceeds from exported services. Division IVA sets 0.25% of proceeds for PSEB-registered IT and IT-enabled exporters (tax years 2024 up to 2029) and 1% in any other case. Section 154A(2) makes that deduction final tax once the return is filed and the other conditions are met.

How the two interact. Section 169(2) sets out what final tax means. The income “shall not be chargeable to tax under any head of income in computing the taxable income of the person”. No expenditure is deducted against it, and the tax is not reduced by credits.

The result: freelance proceeds taxed as final are not part of taxable income. Your taxable income is your salary, and salary is 100% of it. Clause (2) applies.

What are the salaried rates for tax year 2027?

Clause (2) of Division I, as substituted by the Finance Act, 2026:

Taxable income	Tax
Up to Rs. 600,000	0%
Rs. 600,001 to Rs. 1,200,000	1% of the amount above Rs. 600,000
Rs. 1,200,001 to Rs. 2,200,000	Rs. 6,000 + 11% of the amount above Rs. 1,200,000
Rs. 2,200,001 to Rs. 3,200,000	Rs. 116,000 + 20% of the amount above Rs. 2,200,000
Rs. 3,200,001 to Rs. 4,100,000	Rs. 316,000 + 25% of the amount above Rs. 3,200,000
Rs. 4,100,001 to Rs. 5,600,000	Rs. 541,000 + 29% of the amount above Rs. 4,100,000
Rs. 5,600,001 to Rs. 7,000,000	Rs. 976,000 + 32% of the amount above Rs. 5,600,000
Above Rs. 7,000,000	Rs. 1,424,000 + 35% of the amount above Rs. 7,000,000

Worked example (illustrative figures)

Fatima is an accounts officer at a Multan textile firm earning a salary of Rs. 1,800,000 in tax year 2027. In the evenings she designs logos for clients abroad and receives Rs. 2,400,000 through her bank. She is not registered with PSEB. All amounts are invented. The rates are the ones cited on this page.

While the freelance deduction is final tax:

1. Tax deducted on freelance proceeds: Rs. 2,400,000 x 1% = Rs. 24,000
2. Taxable income: salary only, Rs. 1,800,000
3. Salary tax: Rs. 6,000 + 11% x (Rs. 1,800,000 minus Rs. 1,200,000) = Rs. 6,000 + Rs. 66,000 = Rs. 72,000
4. Total income tax: Rs. 72,000 + Rs. 24,000 = Rs. 96,000

If she opts out and her freelance profit is Rs. 2,200,000 (Rs. 200,000 of invented expenses):

1. Taxable income: Rs. 1,800,000 + Rs. 2,200,000 = Rs. 4,000,000
2. Salary share: Rs. 1,800,000 / Rs. 4,000,000 = 45%, which does not exceed 75%, so clause (2) does not apply
3. Clause (1) slab for Rs. 3,200,001 to Rs. 5,600,000: Rs. 650,000 + 40% of the amount above Rs. 3,200,000
4. Tax: Rs. 650,000 + 40% x Rs. 800,000 = Rs. 650,000 + Rs. 320,000 = Rs. 970,000

The Rs. 24,000 already deducted by the bank still exists in this second case. Section 154A(3) does not say in its own words how that deduction is treated once final taxation is switched off, so this example does not subtract it.

What if …?

What if my salary is small and my freelance income is large? While the freelance tax is final, the size of the freelance income does not matter for the slab test, because section 169(2)(a) keeps it out of taxable income.

What if I do not file a return? Filing the return is the first condition in section 154A(2). Section 154A(3) says the final-tax treatment does not apply to a person who does not fulfil the conditions.

What if my freelance clients are in Pakistan? Section 154A covers foreign exchange proceeds. Payments from Pakistani clients fall under other provisions and are covered on a separate page.

Common mistakes

• Adding freelance receipts to salary to find the slab. Section 169(2)(a) excludes final-tax income from taxable income.
• Expecting the employer to deduct tax on freelance income. The freelance deduction is made by the bank under section 154A. Your employer deals with your salary.
• Assuming the clause (1) table never applies to an employee. It applies whenever salary is 75% or less of taxable income, which can happen after opting out.

What to check in the official text

Read sections 154A and 169, then Division I of Part I and Division IVA of Part III of the First Schedule in the Ordinance as amended to 30 June 2026. Clause (1) refers to individuals “except a salaried individual”, a term the Division does not define separately from the 75% test in clause (2). Clause (1) is used in the second example on the reading that it covers individuals to whom clause (2) does not apply.