What are the income tax rates for a partnership firm or AOP for tax year 2027?

A partnership firm or other association of persons (AOP) pays tax on its taxable income using clause (1) of Division I of Part I of the First Schedule to the Income Tax Ordinance, 2001. That clause is shared with individuals who are not salaried, so a firm and a sole proprietor with the same profit pay the same slab tax. For tax year 2027 the rates are those in the Ordinance as amended to 30 June 2026.

What does the law say?

Section 4(1) imposes income tax for each tax year at the rates in Division I or II of Part I of the First Schedule on every person who has taxable income. Section 4(2) says the tax is computed by applying the applicable rates to taxable income and then subtracting any tax credits. Section 92(1) makes an AOP liable to tax separately from its members.

Division I is headed “Rates of Tax for Individuals and Association of Persons”. Clause (1) applies, subject to clause (2), to every individual and association of persons except a salaried individual. Clause (2) sets a separate table for an individual whose salary exceeds seventy-five per cent of taxable income; it has no application to an AOP.

What is the rate table?

The clause (1) table, as substituted by the Finance Act, 2024 and unchanged in the edition amended to 30 June 2026:

S. No.	Taxable income	Tax
1	Does not exceed Rs. 600,000	0%
2	Exceeds Rs. 600,000 but does not exceed Rs. 1,200,000	15% of the amount exceeding Rs. 600,000
3	Exceeds Rs. 1,200,000 but does not exceed Rs. 1,600,000	Rs. 90,000 + 20% of the amount exceeding Rs. 1,200,000
4	Exceeds Rs. 1,600,000 but does not exceed Rs. 3,200,000	Rs. 170,000 + 30% of the amount exceeding Rs. 1,600,000
5	Exceeds Rs. 3,200,000 but does not exceed Rs. 5,600,000	Rs. 650,000 + 40% of the amount exceeding Rs. 3,200,000
6	Exceeds Rs. 5,600,000	Rs. 1,610,000 + 45% of the amount exceeding Rs. 5,600,000

A proviso to the table says that for an AOP that is a professional firm prohibited from incorporating by any law or the rules of the body regulating its profession, the 45% rate at serial 6 is 40%.

Surcharge. Section 4AB, printed at the end of section 4, makes every individual and AOP pay a surcharge at ten percent of the Division I tax where taxable income exceeds Rs. 10 million. The proviso excusing salaried individuals does not apply to an AOP.

Worked example (illustrative figures)

Example 1: a mid-sized firm. Two brothers run a bakery in Multan as a partnership. Made-up taxable income for tax year 2027: Rs. 4,000,000.

1. Rs. 4,000,000 falls in serial 5 (Rs. 3,200,000 to Rs. 5,600,000).
2. Amount above Rs. 3,200,000: Rs. 800,000.
3. 40% of Rs. 800,000 = Rs. 320,000.
4. Tax: Rs. 650,000 + Rs. 320,000 = Rs. 970,000.
5. Taxable income does not exceed Rs. 10 million, so no surcharge.

A sole proprietor in Multan with the same Rs. 4,000,000 of business taxable income and no salary works out the same Rs. 970,000 from the same table.

Example 2: a larger firm. A Sialkot sports goods firm has made-up taxable income of Rs. 12,000,000.

1. Serial 6 applies. Amount above Rs. 5,600,000: Rs. 6,400,000.
2. 45% of Rs. 6,400,000 = Rs. 2,880,000.
3. Division I tax: Rs. 1,610,000 + Rs. 2,880,000 = Rs. 4,490,000.
4. Taxable income exceeds Rs. 10 million, so the section 4AB surcharge applies: 10% of Rs. 4,490,000 = Rs. 449,000.
5. Total: Rs. 4,490,000 + Rs. 449,000 = Rs. 4,939,000, before any tax credits and before any super tax.

The fixed amounts in the table are simply the tax on the band below. For example, 15% of the Rs. 600,000 in serial 2 is Rs. 90,000, which is the fixed amount at the start of serial 3.

What if …?

What if one partner is a company? The first proviso to section 92(1) excludes the company’s share when the AOP’s total income is computed; the company is taxed on its share at the company rate. The clause (1) table applies to the AOP’s income without that share.

What if the firm is a professional firm? Only serial 6 changes, from 45% to 40%, and only where the firm is prohibited from incorporating by law or by its regulator’s rules.

What if the firm makes a loss or very little profit? The slab table applies to taxable income. Minimum tax on turnover and advance tax are separate rules and are covered on other pages.

Common mistakes

• Applying 45% to the whole income. Each rate applies only to the amount above the start of its band, plus the fixed amount shown.
• Using the salaried table. Clause (2) is limited to individuals whose salary exceeds 75% of taxable income. An AOP uses clause (1).
• Taxing the partners’ shares as well. Section 92(1) exempts a member’s share out of income on which the AOP has paid tax, subject to its provisos.
• Forgetting the surcharge above Rs. 10 million. Section 4AB applies to AOPs.

What to check in the official text

Check the clause (1) table and its proviso in Division I of Part I of the First Schedule in the official PDF, since the site text does not reproduce rate tables. Read section 4, including section 4AB at its end, and section 92(1). Super tax on high earning persons and minimum tax on turnover are separate provisions not covered on this page.