I receive two pensions. Are both covered, or only one?

What did the law say about two pensions before 2025?

Before the Finance Act, 2025, only one of two pensions from former employers was exempt under clause (8). Clause (8) of Part I of the Second Schedule exempted “any pension received by a citizen of Pakistan from a former employer”, and its proviso added: “where the person receives more than one such pension, the exemption applies only to the higher of the pensions received.”

A separate sub-clause, clause (9)(i), exempted pension received for services rendered as a member of the Armed Forces of Pakistan or the Federal or a Provincial Government. Anyone who retired from government service and later drew a second pension from a bank or company was dealing with both clauses at once.

What does the law say now?

Both of those exemptions are gone. Section 10 of the Finance Act, 2025, in its amendments to the Second Schedule, provides that “clause (8) and sub-clause (i) of clause (9) shall be omitted”. The consolidated Ordinance, amended to 30 June 2026, now shows clause (8) only as a footnote.

The same Finance Act inserted section 12(2A). Pension under section 12(2)(f) is:

• charged “as a final tax” at the rates in the proviso to clause (2) of Division I of Part I of the First Schedule “where the amount received by an individual from a former employer for a tax year exceeds ten million rupees”;
• not charged at all for “the individual who has attained the age of seventy years”;
• taxed at the ordinary rates under clause (1) or (2) of Division I where the individual “continues to work for former employer or its associate”.

The pension table in the First Schedule, for tax year 2027 (1 July 2026 to 30 June 2027), reads:

Amount of pension received	Rate
Does not exceed Rs. 10 million	0% of the amount
Exceeds Rs. 10 million	5% of the amount exceeding Rs. 10 million

So the question is no longer which pension is exempt. It is whether each pension is measured against the Rs. 10 million line on its own, or both together.

Where is the law silent?

The Ordinance does not say how pensions from two former employers are combined. Three points in the text are relevant, and none of them settles it:

1. Section 12(2A)(i) speaks of “the amount received by an individual from a former employer”, singular.
2. The First Schedule proviso speaks of “pension received by an individual from a former employer in a tax year”.
3. Section 149(1A) makes “any person responsible for paying pension” deduct tax only when “the payment exceeds rupees ten million”. Each payer can see only its own payment.

The wording points towards each former employer’s pension being tested separately, but no provision says so expressly, and none says the opposite. This page does not choose between the two readings.

Worked example (illustrative figures)

Colonel (retired) Tariq in Rawalpindi is 64. In tax year 2027 he receives an Armed Forces pension of Rs. 7,200,000 and a pension from a bank he later worked for of Rs. 4,800,000. He no longer works for either. The amounts are invented; the rates are the tax year 2027 pension table.

Reading 1: each pension tested separately

1. Armed Forces pension: Rs. 7,200,000, below Rs. 10,000,000. Tax at 0% = Rs. 0.
2. Bank pension: Rs. 4,800,000, below Rs. 10,000,000. Tax at 0% = Rs. 0.
3. Total tax on pension: Rs. 0.

Reading 2: both pensions added together

1. Total pension: 7,200,000 + 4,800,000 = Rs. 12,000,000.
2. Amount above Rs. 10 million: 12,000,000 - 10,000,000 = Rs. 2,000,000.
3. Tax at 5%: 2,000,000 x 5% = Rs. 100,000.

Withholding: under section 149(1A) each payer looks at its own payment. Neither Rs. 7,200,000 nor Rs. 4,800,000 exceeds Rs. 10 million, so on the text neither payer is required to deduct tax under that sub-section.

Neither reading asks which of the two pensions is higher. That question belonged to the omitted clause (8) proviso and plays no part in the current calculation.

What if …?

One pension alone is above Rs. 10 million? Then that pension crosses the line under either reading. Section 149(1A) requires its payer to deduct tax on the amount over Rs. 10 million, unless you have turned seventy.

You still work for one of the former employers? Section 12(2A)(ii) says the pension of an individual who continues to work for the former employer or its associate is taxed at the ordinary rates in clause (1) or (2) of Division I. That applies to the pension from that employer. The Ordinance does not say how it interacts with a second pension from a different employer.

You are seventy or older? Section 12(2A)(i) says you “shall not be charged to tax on pension income”. It does not limit this to one pension.

Common mistakes

• Relying on the “higher of the two pensions” rule. It was part of clause (8), which the Finance Act, 2025 omitted.
• Assuming government or army pension is still separately exempt. Clause (9)(i) was omitted by the same amendment. Only clause (9)(ii), family pension for those who die in service, remains.
• Reading the payer’s zero deduction as a final answer. Section 149(1A) governs what the payer deducts. It does not decide how two pensions are combined for the charge itself.

What to check in the official text

Read section 12(2A) and section 149(1A) of the Income Tax Ordinance, 2001 as amended to 30 June 2026, and the proviso to clause (2) of Division I of Part I of the First Schedule for the pension table. The footnotes under clause (8) and clause (9) of Part I of the Second Schedule reproduce the omitted wording. Section 10 of the Finance Act, 2025 is the amending text. Any FBR circular or clarification on combining pensions is not part of this corpus.