How is a doctor's or lawyer's private practice income taxed in Pakistan: as salary or as business income?

A doctor, lawyer or accountant in private practice is taxed on the practice as a business, not as an employee. The Income Tax Ordinance, 2001 does not have a separate head for professional income. It folds professions into business through one definition, and everything else follows from that.

What does the law say?

Section 2(10): a profession is a business. The Ordinance defines “business” to include “any trade, commerce, manufacture, profession, vocation or adventure”, and then says it “does not include employment”. A medical practice, a law chamber or an accountancy practice is a profession, so it is a business for tax purposes. Work done as someone’s employee is carved out.

Section 11: five heads of income. All income is sorted into Salary, Income from Property, Income from Business, Capital Gains and Income from Other Sources. Under section 11(2), income under a head is the amounts chargeable under that head, reduced by the deductions allowed for that head.

Section 18: Income from Business. Section 18(1)(a) charges “the profits and gains of any business carried on by a person at any time in the year” under the head Income from Business. Because of section 2(10), that includes the profits of a practice.

Section 20: deductions. Section 20(1) allows a deduction for expenditure incurred in the year “wholly and exclusively for the purposes of business”. Section 20(2) says that where the expense buys a depreciable asset or an intangible with a useful life of more than one year, it is depreciated or amortised under the Ordinance’s depreciation and amortisation rules instead of being deducted at once.

Section 9: taxable income. Taxable income is total income for the year, reduced (but not below zero) by any deductible allowances. Practice profit is one part of total income.

How does it work in practice?

The practice is treated like any other business owned by an individual:

1. Add up the fees received from patients or clients in the tax year.
2. Subtract the expenses the Ordinance allows for the practice, such as clinic or chamber rent, staff wages and consumables, subject to the list of deductions the Ordinance does not allow.
3. Spread the cost of equipment, furniture and similar assets through depreciation rather than deducting it in one year.
4. The result is Income from Business. Add any other income, such as rent or salary, to reach total income, and then taxable income.

Section 153 points the same way from another direction. For withholding on payments for services, it defines “services” to include the services of “accountants, architects, dentists, doctors, engineers, interior decorators and lawyers, otherwise than as an employee”. The Ordinance therefore treats a professional’s fees as a payment for services, separate from salary, unless the professional is working as an employee.

Worked example (illustrative figures)

Dr. Ayesha Malik runs a dental clinic in Lahore on her own account. Her made-up figures for tax year 2027 (1 July 2026 to 30 June 2027) are:

Item	Amount
Fees received from patients	Rs. 6,000,000
Clinic rent	Rs. 900,000
Salaries of a dental assistant and receptionist	Rs. 1,080,000
Dental materials and consumables	Rs. 620,000
Electricity and other running costs	Rs. 300,000

Step by step:

1. Expenses: Rs. 900,000 + Rs. 1,080,000 + Rs. 620,000 + Rs. 300,000 = Rs. 2,900,000.
2. Income from Business: Rs. 6,000,000 minus Rs. 2,900,000 = Rs. 3,100,000.
3. She has no other income and claims no deductible allowances, so her taxable income under section 9 is Rs. 3,100,000.

The tax on that figure comes from the rate table for individuals other than salaried individuals, covered on the rates page in this category. If she bought a new dental chair during the year, its cost would not appear in step 1. It would be depreciated under the rules that section 20(2) points to.

What if …?

What if I am also employed by a hospital? Pay from the hospital as its employee falls under the Salary head, which is separate. Private clinic fees stay under Income from Business. Both go into one return, and the combined figure decides which rate table applies.

What if the practice makes a loss? Section 11(3) treats deductions above receipts as a loss for that head. Section 11(4) sends it to Part VIII of Chapter III, which governs how losses are set off and carried forward.

What if a company deducted tax from my fees? The tax deducted does not change the head of income. The fees remain business income. How the deducted tax is credited is covered on the withholding pages in this category.

Common mistakes

• Thinking “fees” means salary. The definition of salary does mention fees, but only fees received by an employee from employment. Fees from your own patients or clients are business income.
• Recording only the cash received in hand. Where a payer deducts tax, the full fee is income, not just the net amount paid.
• Deducting personal spending. Section 20(1) requires the expense to be wholly and exclusively for the practice. Household costs are not practice expenses.
• Expensing equipment in full. An X-ray machine or a law library with a useful life over one year is depreciated, not deducted in the year of purchase.

What to check in the official text

Read the definition of “business” in section 2(10), then sections 11, 18 and 20. The list of deductions not allowed, which follows section 20, is worth reading against your own expenses. The rate table is in Division I of Part I of the First Schedule. Rules made by professional bodies such as the Pakistan Medical and Dental Council or bar councils are outside this corpus and are not covered here.