How much income tax is payable on my salary in tax year 2027, and up to what salary is there no tax?

What does the law say?

Section 12 of the Income Tax Ordinance, 2001 makes salary taxable under the head “Salary”. The rate comes from the First Schedule, Part I, Division I, clause (2). That clause applies “where the income of an individual chargeable under the head ‘salary’ exceeds seventy-five per cent of his taxable income”. The table in it was substituted by the Finance Act, 2026, so it governs tax year 2027, which covers income earned from 1 July 2026 to 30 June 2027.

These are the slabs as printed in the consolidated Ordinance amended to 30 June 2026:

Annual taxable income	Tax
Up to Rs. 600,000	0%
Rs. 600,001 to Rs. 1,200,000	1% of the amount over Rs. 600,000
Rs. 1,200,001 to Rs. 2,200,000	Rs. 6,000 + 11% of the amount over Rs. 1,200,000
Rs. 2,200,001 to Rs. 3,200,000	Rs. 116,000 + 20% of the amount over Rs. 2,200,000
Rs. 3,200,001 to Rs. 4,100,000	Rs. 316,000 + 25% of the amount over Rs. 3,200,000
Rs. 4,100,001 to Rs. 5,600,000	Rs. 541,000 + 29% of the amount over Rs. 4,100,000
Rs. 5,600,001 to Rs. 7,000,000	Rs. 976,000 + 32% of the amount over Rs. 5,600,000
Above Rs. 7,000,000	Rs. 1,424,000 + 35% of the amount over Rs. 7,000,000

So the tax-free limit for a salaried individual in tax year 2027 is Rs. 600,000 of taxable income a year, which is Rs. 50,000 a month.

Is there a surcharge on high salaries?

No. Section 4AB, which the consolidated text prints inside section 4, imposes a surcharge of ten percent of the income tax where taxable income exceeds Rs. 10 million. Its proviso then says that for an individual deriving income chargeable under the head “Salary”, no surcharge is payable. A salaried person earning Rs. 12 million a year therefore pays only the table rate.

How does it work in practice?

You do not normally pay this tax yourself during the year. Section 149 requires the person paying your salary to deduct tax each time salary is paid, at your average rate worked out on your estimated annual salary using the Division I rates. The annual figure in the table is what matters; the monthly deduction is just that annual tax spread across the year.

“Taxable income” is not the same as basic pay. Section 12 counts allowances, bonuses, perquisites and many reimbursements as salary, so your taxable salary is usually your gross pay, not just your basic.

Worked example (illustrative figures)

The salaries below are made up. The rates are the tax year 2027 rates from the table above.

Ayesha, a school coordinator in Multan, Rs. 80,000 a month

• Annual salary: Rs. 80,000 x 12 = Rs. 960,000
• Slab: Rs. 600,001 to Rs. 1,200,000, so 1% of the amount over Rs. 600,000
• Amount over Rs. 600,000: Rs. 960,000 - Rs. 600,000 = Rs. 360,000
• Tax: 1% x Rs. 360,000 = Rs. 3,600 a year, or Rs. 300 a month

Bilal, an accountant in Lahore, Rs. 150,000 a month

• Annual salary: Rs. 1,800,000
• Slab: Rs. 1,200,001 to Rs. 2,200,000
• Amount over Rs. 1,200,000: Rs. 600,000
• Tax: Rs. 6,000 + (11% x Rs. 600,000 = Rs. 66,000) = Rs. 72,000 a year, or Rs. 6,000 a month

Sana, a bank manager in Karachi, Rs. 800,000 a month

• Annual salary: Rs. 9,600,000
• Slab: above Rs. 7,000,000
• Amount over Rs. 7,000,000: Rs. 2,600,000
• Tax: Rs. 1,424,000 + (35% x Rs. 2,600,000 = Rs. 910,000) = Rs. 2,334,000 a year, or Rs. 194,500 a month
• Surcharge: none, because of the salary proviso to section 4AB

Notice that Sana’s overall tax is about 24% of her salary, not 35%. The 35% applies only to the rupees above Rs. 7,000,000.

What if my salary is 75% or less of my taxable income?

Clause (2) applies only where salary is more than 75% of taxable income. If you also have large business or other income, so that salary is 75% or less, clause (1) of Division I applies instead. Clause (1) has its own table for individuals other than salaried individuals. It is covered on a separate page about combining salary with rental or business income.

What if I work only part of the year?

The table applies to the taxable income of the tax year. If you started work in January, only the salary you actually receive from January to June counts, and it is measured against the same annual slabs. Someone earning Rs. 100,000 a month for six months has Rs. 600,000 of salary for the year and falls in the 0% slab.

Common mistakes

• “The 0% limit is Rs. 600,000 of basic salary.” The limit is on taxable income. Allowances and perquisites that section 12 includes in salary count towards it.
• “Crossing into a higher slab makes my whole salary taxable at the higher rate.” The table is marginal. Earning one rupee more than Rs. 1,200,000 increases your tax by 11 paisa, not by 11% of your whole salary.
• “Last year’s rates still apply.” The Finance Act, 2026 substituted the table. The previous table, shown in the footnote of the source PDF, charged 23%, 30% and 35% on the upper slabs. Use the rates for the tax year in which the salary is received.

What to check in the official text

Read clause (2) of Division I, Part I of the First Schedule in the source PDF, including the footnote that shows the table it replaced. Read section 4AB, printed within section 4 in this consolidated text, for the surcharge and its salary proviso. Tax credits for items such as donations or pension contributions reduce the tax worked out from this table; they are dealt with on separate pages.