How much tax does the bank deduct on my savings or term deposit profit in tax year 2027?

What does the law say?

Two provisions of the Income Tax Ordinance, 2001 work together on bank profit.

Section 151 is the collection rule. Where “a banking company or financial institution pays any profit on a debt, being an account or deposit maintained with the company or institution”, the payer must deduct tax at the rate in Division IA of Part III of the First Schedule. The deduction is taken at the time the profit is paid.

Division IA sets three rates for tax deducted under section 151:

Clause	Payment	Rate
(a)	Yield or profit paid by a banking company or financial institution on an account or deposit maintained with it	20%
(b)	Yield or profit on Government securities under section 151(1)(c) paid to any person other than an individual	20%
(c)	Yield or profit in cases other than (a) and (b)	15%

Section 7B is the charging rule for people who are not companies. It imposes tax at the rate in Division IIIA of Part I of the First Schedule on every person, other than a company, who receives profit on debt from a payer listed in section 151(1)(a) to (d). Division IIIA uses the same three clauses and the same rates: 20% for bank and financial institution profit, 20% for Government securities paid to non-individuals, and 15% in other cases. Section 7B(2) applies the rate to the gross amount of the profit.

The Ordinance used here is amended to 30 June 2026, so these are the rates for tax year 2027, which covers profit paid from 1 July 2026 to 30 June 2027.

Does the type of account change the rate?

No. Clause (a) covers profit on “an account or deposit maintained with such company or institution”. It does not separate savings accounts, term deposits or fixed deposits. If the profit comes from a bank or financial institution on money you keep with it, the rate in both Division IA and Division IIIA is 20%.

Whether a particular institution is a “banking company” or “financial institution”, and whether a particular product pays “profit on debt”, turns on definitions elsewhere in the Ordinance. This page does not work through those definitions for individual products.

How does it work in practice?

The bank works out the profit for the period, subtracts any Zakat it deducts from you under the Zakat and Ushr Ordinance, 1980, and deducts 20% of what remains. Section 151 says the base is “the gross amount of the yield or profit paid as reduced by the amount of Zakat”. The net profit is then credited to your account.

For an individual whose profit falls within section 7B, section 8 makes that tax “a final tax on the amount in respect of which the tax is imposed”. The profit is not added to other income and taxed again at slab rates. Section 7B(3) switches this treatment off for profit that is exempt or that exceeds five million rupees, which is explained on the related page about final and minimum tax.

Worked example (illustrative figures)

Sana, a school teacher in Lahore, appears on the Active Taxpayers List. In tax year 2027 her one-year term deposit earns profit of Rs. 500,000 and her savings account earns Rs. 60,000. No Zakat is deducted.

1. Term deposit: 20% x Rs. 500,000 = Rs. 100,000 deducted. She receives Rs. 400,000.
2. Savings account: 20% x Rs. 60,000 = Rs. 12,000 deducted. She receives Rs. 48,000.
3. Total tax deducted: Rs. 100,000 + Rs. 12,000 = Rs. 112,000 on total profit of Rs. 560,000.

Now suppose the bank had also deducted Zakat of Rs. 12,500 from the term deposit profit.

1. Base for tax: Rs. 500,000 - Rs. 12,500 = Rs. 487,500.
2. Tax: 20% x Rs. 487,500 = Rs. 97,500.

What if I am not on the Active Taxpayers List?

Section 100BA says the deduction of advance tax for a person not appearing on the Active Taxpayers List is determined under the rules in the Tenth Schedule. Rule 1 of that Schedule increases the rate by one hundred percent, so the 20% bank rate becomes 40%. The related page on non-filers works through this.

What if the profit is from National Savings or Government securities?

Profit on National Savings accounts and certificates falls under section 151(1)(a), not under the bank clause. Neither clause (a) nor clause (b) of Division IA names it, so it takes the 15% rate in clause (c). Profit on Government securities paid to an individual also falls in clause (c) at 15%, because clause (b) applies only to persons other than individuals.

Common mistakes

• Assuming the old 15% still applies. The Finance Act, 2025 substituted Division IA and Division IIIA. The single 15% rate was replaced by the three-clause structure with 20% for banks.
• Expecting a lower rate on a savings account than on a term deposit. Clause (a) applies to any account or deposit maintained with the bank.
• Treating the deduction as a charge on the whole profit before Zakat. Section 151 reduces the base by Zakat paid by the recipient at the time the profit is paid.

What to check in the official text

Read section 151(1) and (3), section 7B, section 8 and section 100BA, then Division IA of Part III and Division IIIA of Part I of the First Schedule in the source PDF, because our site copy does not reproduce the schedules as tables. Profit rates offered by banks, and any State Bank of Pakistan rules on how banks calculate profit, are outside this corpus.