I have salary plus rental income or a side business; do I still get the salaried tax rates?

What does the law say?

Division I of Part I of the First Schedule to the Income Tax Ordinance, 2001 has two tables for individuals.

• Clause (1) sets the rates for “every individual and association of persons except a salaried individual”.
• Clause (2) sets lower rates, but only “where the income of an individual chargeable under the head ‘salary’ exceeds seventy-five per cent of his taxable income”.

So the test is a ratio, not a label. Having a job does not by itself put you on the salaried table. What matters is salary income (as defined in section 12) divided by your total taxable income for the tax year. Section 4 then applies whichever table fits to your whole taxable income and subtracts any tax credits.

What are the two tables for tax year 2027?

These are the tables in the Ordinance as amended to 30 June 2026, which apply to tax year 2027 (1 July 2026 to 30 June 2027). The clause (2) table was substituted by the Finance Act, 2026; the clause (1) table was last substituted by the Finance Act, 2024.

Clause (2), salary above 75% of taxable income

Taxable income	Tax
Up to Rs. 600,000	0%
Rs. 600,000 to Rs. 1,200,000	1% of the amount above Rs. 600,000
Rs. 1,200,000 to Rs. 2,200,000	Rs. 6,000 + 11% of the amount above Rs. 1,200,000
Rs. 2,200,000 to Rs. 3,200,000	Rs. 116,000 + 20% of the amount above Rs. 2,200,000
Rs. 3,200,000 to Rs. 4,100,000	Rs. 316,000 + 25% of the amount above Rs. 3,200,000
Rs. 4,100,000 to Rs. 5,600,000	Rs. 541,000 + 29% of the amount above Rs. 4,100,000
Rs. 5,600,000 to Rs. 7,000,000	Rs. 976,000 + 32% of the amount above Rs. 5,600,000
Above Rs. 7,000,000	Rs. 1,424,000 + 35% of the amount above Rs. 7,000,000

Clause (1), all other individuals

Taxable income	Tax
Up to Rs. 600,000	0%
Rs. 600,000 to Rs. 1,200,000	15% of the amount above Rs. 600,000
Rs. 1,200,000 to Rs. 1,600,000	Rs. 90,000 + 20% of the amount above Rs. 1,200,000
Rs. 1,600,000 to Rs. 3,200,000	Rs. 170,000 + 30% of the amount above Rs. 1,600,000
Rs. 3,200,000 to Rs. 5,600,000	Rs. 650,000 + 40% of the amount above Rs. 3,200,000
Above Rs. 5,600,000	Rs. 1,610,000 + 45% of the amount above Rs. 5,600,000

In each band the lower figure is excluded and the upper figure included (“exceeds … but does not exceed”).

How does it work in practice?

Rent from property is chargeable under the head “Income from Property” and business profit under “Income from Business”. Both are added to salary to arrive at taxable income. The more of that total comes from non-salary sources, the closer you get to the 75% line.

There is a cliff at the line. If salary is exactly 75% of taxable income, the law says “exceeds”, so clause (2) does not apply. Crossing the line changes the rate on every rupee of taxable income, not just the extra income.

Your employer’s deduction under section 149 is computed on your estimated salary income only. The employer is not taxing your rent or business, so if the clause (1) table ends up applying, the extra tax is not collected through payroll.

Worked example (illustrative figures)

Bilal works at a bank in Karachi. His salary for tax year 2027 is Rs. 2,400,000.

Case A: rental income of Rs. 600,000 (after deductions allowed for property income).

1. Taxable income = Rs. 2,400,000 + Rs. 600,000 = Rs. 3,000,000.
2. Salary share = 2,400,000 / 3,000,000 = 80%. That exceeds 75%, so clause (2) applies.
3. Tax = Rs. 116,000 + 20% of (3,000,000 - 2,200,000) = Rs. 116,000 + Rs. 160,000 = Rs. 276,000.

Case B: a side business earning Rs. 1,000,000.

1. Taxable income = Rs. 2,400,000 + Rs. 1,000,000 = Rs. 3,400,000.
2. Salary share = 2,400,000 / 3,400,000 = about 70.6%. That is not above 75%, so clause (1) applies.
3. Tax = Rs. 650,000 + 40% of (3,400,000 - 3,200,000) = Rs. 650,000 + Rs. 80,000 = Rs. 730,000.
4. For comparison, the clause (2) table on the same Rs. 3,400,000 would give Rs. 316,000 + 25% of Rs. 200,000 = Rs. 366,000. The failed test costs Rs. 364,000.

Where is Bilal’s line? With salary of Rs. 2,400,000, salary exceeds 75% only while taxable income is below Rs. 3,200,000 (because 2,400,000 / 0.75 = 3,200,000). So his other taxable income must stay below Rs. 800,000 for the salaried table to apply.

What if my taxable income is above Rs. 10 million?

Section 4AB imposes a surcharge of ten percent of the income tax imposed under Division I where taxable income exceeds rupees ten million, with a proviso that for “an individual deriving income chargeable under the head ‘Salary’, no surcharge shall be payable”. The text does not say whether a person with both salary and substantial other income falls within that proviso. That question is left open here.

What if I have a loss from the business?

The 75% test compares salary with taxable income. How a business loss interacts with salary is governed by the loss set-off rules of the Ordinance, which are outside this page.

Common mistakes

• Thinking a job title decides the table. Clause (2) turns on the ratio of salary income to taxable income.
• Applying the higher rate only to the extra income. Section 4 applies the applicable rates to all taxable income.
• Relying on the employer’s certificate as the final figure. Section 149 covers salary only; the employer’s deduction does not reflect your rent or business.
• Treating exactly 75% as enough. The word used is “exceeds”.

What to check in the official text

Read Division I of Part I of the First Schedule (both clauses and their footnotes) in the Ordinance amended to 30 June 2026, together with sections 4, 4AB, 12 and 149. The tables in our copy of the consolidated text are laid out across page breaks, so confirm each band against the official PDF before relying on a figure.