I receive two pensions. Are both exempt or only one?

What did the law say before 2025?

Until the Finance Act, 2025, the answer was in the Second Schedule. Clause (8) of Part I exempted “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. Its proviso dealt with your exact situation: “where the person receives more than one such pension, the exemption applies only to the higher of the pensions received.” So one pension was exempt and the smaller one was taxable.

The Finance Act, 2025 omitted clause (8). The consolidated Ordinance amended to 30 June 2026 prints it only as a footnote. The same Act also omitted sub-clause (i) of clause (9), which exempted pension received for service in the Armed Forces or the Federal or a Provincial Government. What remains of clause (9) is sub-clause (ii), covering pension granted to the families and dependents of public servants or Armed Forces members who die during service.

What does the law say now?

Section 12(2A), inserted by the same Finance Act, 2025, replaced the exemption with a rate rule. Under section 12(2A)(i), pension is charged “as a final tax” at the rates in the proviso to clause (2) of Division I, Part I of the First Schedule where the amount received “from a former employer” for a tax year exceeds ten million rupees. An individual who has attained the age of seventy years “shall not be charged to tax on pension income”.

The pension table reads:

Pension received from a former employer in a tax year	Rate
Up to Rs. 10,000,000	0% of the amount
Above Rs. 10,000,000	5% of the amount exceeding Rs. 10,000,000

In effect the choice between two pensions has gone. Neither pension is singled out; each one is pension and falls under the same table. For most pensioners, whose combined pensions are far below Rs. 10 million a year, the result is no tax on either.

Where is the law unclear?

The Ordinance does not say how two pensions from two former employers are combined. The wording points in different directions:

• Section 12(2A)(i) speaks of “the amount received by an individual from a former employer”, and the table heading speaks of “pension received by an individual from a former employer”. Both use the singular, which could mean each employer’s pension is tested on its own.
• The same sub-clause and the table are framed around the individual and “a tax year”, which could support adding everything the individual receives in the year.
• Section 149(1A) makes each “person responsible for paying pension” deduct tax only where “the payment” exceeds Rs. 10 million. Each payer can only see its own payment, so in practice neither payer deducts tax where each pension is below the threshold on its own.

This page does not choose between these readings.

Worked example (illustrative figures)

Brigadier (retired) Saleem, 66, of Rawalpindi draws an Armed Forces pension and a pension from a corporation he joined after leaving the Army. All amounts are invented to show the effect of the threshold; the rates are the real ones cited above.

• Pension A: Rs. 6,500,000 for tax year 2027
• Pension B: Rs. 4,500,000 for tax year 2027
• Total: Rs. 11,000,000

Reading 1: each pension tested separately.

1. Pension A: Rs. 6,500,000 is not above Rs. 10,000,000, so 0%. Tax Rs. 0.
2. Pension B: Rs. 4,500,000 is not above Rs. 10,000,000, so 0%. Tax Rs. 0.
3. Total tax: Rs. 0

Reading 2: pensions added together.

1. Total pension: 6,500,000 + 4,500,000 = 11,000,000
2. Amount above Rs. 10,000,000: 11,000,000 - 10,000,000 = 1,000,000
3. Tax at 5%: 5% of 1,000,000 = Rs. 50,000

Under either reading, neither payer deducts tax under section 149(1A), because neither payment exceeds Rs. 10 million on its own. If Reading 2 were applied, the Rs. 50,000 would have to be settled another way, and the Ordinance does not spell out how for this case.

For comparison, under the pre-2025 clause (8), Pension A (the higher) would have been exempt and Pension B taxable in full at the slab rates. That rule does not apply to tax year 2027.

What if …?

I still work for one of the two 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 clause (1) or (2) slab rates. That would move that pension off the pension table, even if the other one stays on it.

One of the pensions is a family pension? Clause (9)(ii) of the Second Schedule still exempts pension granted under the relevant rules to families and dependents of public servants or Armed Forces members who die during service.

I am seventy or older? Section 12(2A)(i) removes tax on “pension income” for an individual who has attained seventy. The words are not limited to one pension.

Common mistakes

• Relying on the “higher of the pensions” rule. It was part of clause (8), which the Finance Act, 2025 omitted.
• Assuming a government or army pension is still exempt by name. Clause (9)(i) was also omitted in 2025; such pensions now fall under section 12(2A) like any other.
• Treating the Rs. 10 million figure as a cliff. The table charges 5% only on the amount exceeding Rs. 10 million.

What to check in the official text

Read section 12(2A), then the pension table at the end of clause (2) of Division I, Part I of the First Schedule, which is a table and is best read in the official PDF. The footnotes to Part I of the Second Schedule reproduce the omitted clause (8) and clause (9)(i). Section 149(1A) sets how each pension payer deducts tax. If your combined pensions are above Rs. 10 million while each one is below it, the Ordinance text does not answer how the threshold applies, and any FBR clarification on it is outside this corpus.