I pay tax abroad on income that Pakistan also taxes, such as a foreign pension or Pakistani rent. Do I pay tax twice?

What does the law say?

Whether you pay tax twice depends first on whether you are resident in Pakistan for the tax year, because the Income Tax Ordinance, 2001 taxes residents and non-residents on different income.

• Section 11(5) computes a resident’s income from both Pakistan-source and foreign-source amounts.
• Section 11(6) says a non-resident’s income “shall be computed by taking into account only amounts that are Pakistan-source income.”
• Section 101 decides where income comes from. Under section 101(9), rent from immovable property in Pakistan is Pakistan-source. Under section 101(11), a pension or annuity is Pakistan-source “if it is paid by a resident or borne by a permanent establishment in Pakistan of a non-resident person.” A pension paid by a foreign employer or foreign scheme is therefore foreign-source under section 101(16).

The Ordinance then gives three kinds of relief to residents who are also taxed abroad:

1. Section 102 exempts foreign-source salary received by a resident individual “if the individual has paid foreign income tax in respect of the salary.” Section 102(2) treats that tax as paid when the employer withheld it and paid it to the revenue authority of the country where the job was done.
2. Section 103 gives a resident a foreign tax credit equal to “the lesser of” the foreign income tax paid and the Pakistan tax payable on that income.
3. Section 107 lets the Federal Government make tax treaties, and section 107(2) gives a treaty and its implementing notification effect “notwithstanding anything contained in any law for the time being in force” so far as it provides relief from tax, among other things.

How is the section 103 credit worked out?

Section 103(2) finds the Pakistan tax on your foreign income by applying your average rate of Pakistan income tax to your net foreign-source income. Section 103(8) defines the average rate as the percentage that your Pakistan income tax, before this credit, is of your taxable income. Net foreign-source income is your foreign-source income charged to tax, less deductions that relate to earning it.

Four further rules from section 103 matter in practice:

• Where you have foreign income under more than one head, the credit is worked out separately for each head (section 103(3)).
• Foreign withholding tax counts as foreign income tax (section 103(8)).
• The foreign tax must be paid within two years after the end of the tax year in which the income was derived (section 103(7)).
• Any part of the credit that cannot be used is not refunded, carried back or carried forward (section 103(6)).

Section 4(3) applies the foreign tax credit first, before any other tax credit.

Worked example (illustrative figures)

Tariq returned to Lahore from Manchester several years ago and is resident in Pakistan for tax year 2027. He receives a pension from a UK scheme. The amounts below are invented. The method is the one in section 103.

Item	Amount
Taxable income, all sources	Rs. 4,000,000
of which net foreign-source income (UK pension)	Rs. 2,500,000
Pakistan tax before the section 103 credit (assumed)	Rs. 800,000
UK tax paid on the pension	Rs. 300,000

1. Average rate of Pakistan income tax: Rs. 800,000 / Rs. 4,000,000 = 20%.
2. Pakistan tax on the foreign income: 20% x Rs. 2,500,000 = Rs. 500,000.
3. Credit: the lesser of Rs. 300,000 (UK tax) and Rs. 500,000 = Rs. 300,000.
4. Pakistan tax payable: Rs. 800,000 - Rs. 300,000 = Rs. 500,000.

Now suppose the UK tax had been Rs. 650,000. The credit is capped at Rs. 500,000, so Pakistan tax payable is Rs. 800,000 - Rs. 500,000 = Rs. 300,000. The remaining Rs. 150,000 of UK tax is not refunded or carried to another year under section 103(6).

The Rs. 800,000 figure is assumed so the example stays on the credit. In a real return it comes from the rate tables in the First Schedule for the right tax year.

What if I live abroad and earn rent or a pension from Pakistan?

If you are not resident in Pakistan, section 11(6) still taxes your Pakistan-source income. Rent from a house in Islamabad is Pakistan-source under section 101(9). A pension paid by a Pakistani employer or a Pakistani government is Pakistan-source under section 101(11). Section 103 does not help, because it applies only to a “resident taxpayer” with foreign-source income.

Relief for a non-resident, if any, comes from the country where you live, under its own law, or from a tax treaty under section 107. This corpus holds the power to make treaties, not the treaties themselves, so this page does not say what any particular treaty provides.

What if my foreign salary was not taxed abroad?

Section 102 exempts foreign salary only where foreign income tax has been paid on it. The text does not extend the exemption to salary on which no foreign tax was paid. Whether that salary is taxable in Pakistan then depends on whether you were resident for the year. The related pages on residence and foreign salary cover that question.

Common mistakes

• Claiming the full foreign tax as a credit. Section 103(1) caps the credit at the Pakistan tax on that income.
• Adding foreign income from different heads together. Section 103(3) works the credit out head by head.
• Carrying unused credit forward. Section 103(6) rules this out.
• Assuming a UK or Gulf pension is Pakistan-source because it is paid into a Pakistani bank. Section 101(11) looks at who pays or bears the pension, not where the money lands.

What to check in the official text

Read sections 11, 101, 102, 103, 107 and 4(3) of the Income Tax Ordinance, 2001 as amended to 30 June 2026. If you rely on a tax treaty, read the treaty and its implementing notification from the Federal Government. Neither is in this corpus. The other country’s tax law also decides how it treats your Pakistani income, and that is outside the scope of this site.