I run a business in my own name. How much income tax do I pay on my profit in tax year 2027, and up to what profit is there no tax?

What does the law say?

Section 4 of the Income Tax Ordinance, 2001 imposes income tax, at the rates in Division I of Part I of the First Schedule, “on every person who has taxable income for the year”. A sole proprietor is an individual, and the profit of the business is income under the head “Income from Business”. Section 18(1)(a) brings into that head “the profits and gains of any business carried on by a person at any time in the year”.

Division I has two tables for individuals. Clause (1) covers “every individual and association of persons except a salaried individual”. Clause (2) covers an individual whose salary exceeds seventy-five per cent of taxable income. A person running a business with no salary falls under clause (1).

The clause (1) table, as it stands in the Ordinance amended to 30 June 2026 (so for tax year 2027, income earned from 1 July 2026 to 30 June 2027), reads:

Taxable income	Tax
Up to Rs. 600,000	0%
Rs. 600,001 to Rs. 1,200,000	15% of the amount over Rs. 600,000
Rs. 1,200,001 to Rs. 1,600,000	Rs. 90,000 + 20% of the amount over Rs. 1,200,000
Rs. 1,600,001 to Rs. 3,200,000	Rs. 170,000 + 30% of the amount over Rs. 1,600,000
Rs. 3,200,001 to Rs. 5,600,000	Rs. 650,000 + 40% of the amount over Rs. 3,200,000
Above Rs. 5,600,000	Rs. 1,610,000 + 45% of the amount over Rs. 5,600,000

A proviso to the table lowers the top 45% rate to 40% for an association of persons that is a professional firm barred by law or professional rules from incorporating. That proviso does not apply to an individual sole proprietor.

How does it work in practice?

The table is applied to taxable income, not to sales. Section 9 defines taxable income as total income “reduced (but not below zero) by the total of any deductible allowances” for the year. For most sole proprietors, total income is business profit plus any other income such as rent.

Each rate applies only to the slice of income inside its band. The fixed amounts in the table (Rs. 90,000, Rs. 170,000 and so on) are simply the tax on all the bands below. Section 4(2) then subtracts any tax credits from the result to give the tax payable.

Why is this table steeper than the salaried table?

The Ordinance simply sets different figures. For the same Rs. 600,001 to Rs. 1,200,000 band, the clause (2) salaried table charges 1% of the amount over Rs. 600,000, while clause (1) charges 15%. The top rate is 35% for salaried individuals and 45% for others. Both tables share the same Rs. 600,000 nil band.

Worked example (illustrative figures)

Bilal runs a hardware shop in Sialkot. He has no salary. After expenses, his taxable income for tax year 2027 is Rs. 2,400,000.

1. Band: Rs. 1,600,001 to Rs. 3,200,000.
2. Amount over Rs. 1,600,000: Rs. 2,400,000 minus Rs. 1,600,000 = Rs. 800,000.
3. 30% of Rs. 800,000 = Rs. 240,000.
4. Tax: Rs. 170,000 + Rs. 240,000 = Rs. 410,000, before any tax credits.

Rukhsana runs a tailoring shop in Peshawar. Her taxable income is Rs. 1,000,000.

1. Band: Rs. 600,001 to Rs. 1,200,000.
2. Amount over Rs. 600,000: Rs. 400,000.
3. Tax: 15% of Rs. 400,000 = Rs. 60,000.

For comparison only, if Bilal’s Rs. 2,400,000 had been salary taxed on the clause (2) table, the tax would be Rs. 116,000 + 20% of Rs. 200,000 = Rs. 156,000.

What if my profit is very high?

Two other provisions can add to the slab tax. Section 4AB, printed at the end of section 4, charges a surcharge of ten percent of the Division I tax where taxable income exceeds Rs. 10 million. Section 113 imposes minimum tax on turnover for an individual with turnover of Rs. 100 million or more, where normal tax is lower than the Division IX percentage. Both are explained on their own pages.

What if I also draw a salary?

If salary is more than 75% of your taxable income, clause (2) applies instead, to the whole taxable income. If it is 75% or less, clause (1) above applies to the whole amount, salary included.

Common mistakes

• “Rs. 600,000 of sales is tax free.” The nil band is for taxable income, meaning profit after allowable expenses, not sales.
• Applying 30% to the whole income. Only the slice above Rs. 1,600,000 is taxed at 30%. The lower slices keep their own rates.
• Using last year’s table. The Finance Act, 2024 substituted the clause (1) table, and earlier tables are printed in the footnotes of the official PDF. Those older figures are not the tax year 2027 rates.

What to check in the official text

Read section 4, section 9 and section 18(1) in the Ordinance, then clause (1) of Division I of Part I of the First Schedule in the official PDF. Our site copy of the Ordinance leaves out tables, so the rates above were taken from the table in the PDF amended to 30 June 2026.