Is my pension taxable in Pakistan after the Finance Act 2025 changes?

What does the law say?

Pension is income under the head “Salary”. Section 12(2)(f) of the Income Tax Ordinance, 2001 includes in salary “any pension or annuity, or any supplement to a pension or annuity”. That part is not new. What changed is how pension is exempted and what rate applies.

Until the Finance Act 2025, two clauses of Part I of the Second Schedule kept most pensions out of tax:

Old clause	What it exempted (as quoted in the footnotes of the consolidated text)	Status now
Clause (8)	“Any pension received by a citizen of Pakistan from a former employer”, except where the person continued to work for that employer or an associate	Omitted by the Finance Act 2025
Clause (9)(i)	Pension “received in respect of services rendered by a member of the Armed Forces of Pakistan or Federal Government or a Provincial Government”	Omitted by the Finance Act 2025
Clause (9)(ii)	Pension granted under the relevant rules to families and dependents of public servants or members of the Armed Forces who die during service	Still in force

Section 10 of the Finance Act 2025 did both things at once: it omitted those clauses and inserted a new sub-section (2A) into section 12, plus a pension rate table as a proviso to clause (2) of Division I of Part I of the First Schedule. The Finance Act 2025 came into force on 1 July 2025, and the text amended to 30 June 2026 still carries these rules for tax year 2027.

How much tax does the pension table charge?

The proviso applies to “pension received by an individual from a former employer in a tax year”. For tax year 2027 (1 July 2026 to 30 June 2027) it reads:

Pension received in the tax year	Rate of tax
Does not exceed ten million rupees (Rs. 10,000,000)	0% of the amount
Exceeds ten million rupees	5% of the amount exceeding ten million rupees

Section 12(2A)(i) says pension is charged “as a final tax” at these rates, and adds that an individual “who has attained the age of seventy years shall not be charged to tax on pension income”. Section 149(1A) then tells the payer of a pension to deduct tax only on the amount “over and above rupees ten million”, and only for a former employee below seventy.

So the headline “pension is now taxable” is technically true, because the exemption is gone. For a pensioner receiving Rs. 10,000,000 or less in the year, the rate in the table is still 0%.

Worked example (illustrative figures)

Case 1. Nasreen, 64, a retired school principal in Multan, receives a pension of Rs. 95,000 a month.

1. Pension for tax year 2027: Rs. 95,000 x 12 = Rs. 1,140,000.
2. This does not exceed Rs. 10,000,000, so row 1 of the pension table applies: 0%.
3. Tax on the pension: Rs. 0. Section 149(1A) requires no deduction, because the payment does not exceed ten million rupees.

Case 2. Tariq, 66, a retired senior officer in Islamabad, receives Rs. 900,000 a month.

1. Pension for the year: Rs. 900,000 x 12 = Rs. 10,800,000.
2. Amount above ten million: Rs. 10,800,000 - Rs. 10,000,000 = Rs. 800,000.
3. Tax at 5% of the excess: Rs. 800,000 x 5% = Rs. 40,000.

If Tariq were 70 or older, section 12(2A)(i) says he would not be charged on the pension at all.

What if I still work for my old employer?

Then the pension table does not apply. Section 12(2A)(ii) says the pension of an individual “who continues to work for former employer or its associate” is taxed at the ordinary rates in clause (1) or (2) of Division I. That is the same rule the old clause (8) carried, now written into section 12 itself.

What if the pension is a family pension?

Clause (9)(ii) of Part I of the Second Schedule still exempts pension granted under the relevant rules to the families and dependents of public servants or members of the Armed Forces who die during service. Only sub-clause (i) was omitted. A family pension that does not fall within clause (9)(ii) is not addressed separately by the pension table, which speaks of pension received by an individual from a former employer.

Common mistakes

• Reading “exemption removed” as “fully taxable at slab rates”. Section 12(2A) sends pension from a former employer to the separate pension table, where the first Rs. 10,000,000 is at 0%.
• Assuming government and military pensions are still exempt under clause (9). Sub-clause (i) was omitted by the Finance Act 2025. What remains in clause (9) is the family pension of those who die in service.
• Applying 5% to the whole pension. The table charges 5% “of the amount exceeding rupees ten million”, not of the whole amount.
• Forgetting the age rule. Section 12(2A)(i) removes pension income from charge for an individual who has attained seventy.

What to check in the official text

Read section 12(2)(f) and 12(2A), section 149(1A), and the proviso to clause (2) of Division I of Part I of the First Schedule in the official PDF, since our site copy of the Ordinance does not reproduce rate tables. The footnotes under Part I of the Second Schedule quote the omitted clause (8) and clause (9)(i) word for word. Two points are not settled by the text: whether a pension below ten million rupees still counts as income “subject to final taxation” for return-filing purposes, and how a final-tax pension interacts with other income in the same year. This page does not resolve either.