Is the tax on a pension above Rs 10 million deducted at source, or do I pay it with my return?

Is the tax deducted at source?

Yes. Section 149(1A) of the Income Tax Ordinance, inserted by the Finance Act 2025 and still in force in the Ordinance amended to 30 June 2026, makes the pension payer collect it. It applies to “any person responsible for paying pension to a former employee who is below the age of seventy years and deriving pension income during a tax year in which the payment exceeds rupees ten million”. That person “shall at the time of payment, deduct tax from the amount which is over and above rupees ten million”.

So the tax is withheld from the pension as it is paid, in the same way that section 149(1) makes an employer deduct tax from salary. The section does not describe it as a tax the pensioner pays separately with the return.

Who counts as the person responsible for paying?

The section uses the general words “any person responsible for paying pension”. It does not name particular offices. Whoever actually pays the pension, whether a government accounts office, a bank acting for a pension fund, or a private former employer, falls within those words if the other conditions are met.

The duty applies only when three conditions hold together:

1. the recipient is a former employee;
2. the recipient is below the age of seventy years; and
3. the payment in the tax year exceeds Rs. 10 million.

A pensioner aged seventy or more is outside section 149(1A), which matches section 12(2A)(i): such an individual “shall not be charged to tax on pension income”.

What adjustments does the payer make?

Section 149(1A) tells the payer to make the deduction after adjusting for tax withheld from the former employee under other heads and for tax credits under sections 61 (charitable donations) and 63 (contribution to an approved pension fund), on documentary evidence. It also allows the payer to correct any excess deduction or deficiency from an earlier deduction, or a failure to deduct during the year.

Where does the wording not line up?

There are two drafting points the Ordinance leaves open. This page records them without choosing an answer.

Which rates? Section 149(1A) says the payer deducts “at the rate provided in Division I of Part I of the First Schedule”. Section 12(2A)(i) says the pension is charged “at the rates specified in the proviso to clause (2) of Division I of Part I of the First Schedule”. The proviso is part of Division I, and it holds the pension table: 0% up to Rs. 10 million, and 5% of the amount exceeding Rs. 10 million. Division I also contains the general slab tables in clauses (1) and (2). Section 149(1A) does not say which of these it means.

Credits against a final tax? Section 12(2A)(i) calls the pension tax a final tax. Section 169(2)(d), describing final tax in general, says “the tax deducted shall not be reduced by any tax credit allowed under this Ordinance”. Yet section 149(1A) tells the payer to adjust tax credits under sections 61 and 63. Section 169(1) as printed does not list section 149(1A) or 12(2A), so how the two fit together is not settled by the text.

Worked example (illustrative figures)

Mr. Asif, aged 63, Karachi, receives Rs. 1,100,000 a month from his former employer in tax year 2027. This example uses the pension table rate of 5% and spreads the deduction by cumulative payments. Section 149(1A) itself does not prescribe a month-by-month method.

Month	Pension paid	Cumulative	Amount above Rs. 10 million in this payment	5% of that amount
July to March (9 months)	Rs. 9,900,000	Rs. 9,900,000	Rs. 0	Rs. 0
April	Rs. 1,100,000	Rs. 11,000,000	Rs. 1,000,000	Rs. 50,000
May	Rs. 1,100,000	Rs. 12,100,000	Rs. 1,100,000	Rs. 55,000
June	Rs. 1,100,000	Rs. 13,200,000	Rs. 1,100,000	Rs. 55,000
Total	Rs. 13,200,000		Rs. 3,200,000	Rs. 160,000

Check: Rs. 13,200,000 - Rs. 10,000,000 = Rs. 3,200,000, and 5% of that is Rs. 160,000, which matches the total. A payer could instead estimate at the start of the year that payments will exceed Rs. 10 million and spread the deduction evenly; the annual figure under the pension table would be the same.

What if something goes wrong?

What if the payer deducts nothing? Section 149(1A) itself lists “failure to make deduction during the year” among the matters the payer adjusts for. The general consequences of non-deduction sit in other provisions of the Ordinance not covered on this page.

What if I work for the former employer again? Section 12(2A)(ii) charges the pension at the ordinary rates in clause (1) or (2) of Division I instead of the pension table. Section 149(1A) does not say how its Rs. 10 million deduction rule applies in that case.

Common mistakes

• Deducting on the whole pension. The base is “the amount which is over and above rupees ten million”.
• Deducting from a pensioner aged seventy or more. Section 149(1A) covers only former employees “below the age of seventy years”.
• Treating the rate question as settled. The Ordinance wording differs between section 149(1A) and section 12(2A)(i).

What to check in the official text

Read section 149(1A) with section 12(2A) and the proviso to clause (2) of Division I of Part I of the First Schedule, all in the Ordinance amended to 30 June 2026. Check section 169(1) and (2) for the general effect of final tax. Any FBR circular explaining how section 149(1A) is to be applied is outside this corpus and has not been checked here.