Is there a 10% surcharge on business income, and does it apply to me?

What does the law say?

The Income Tax Ordinance, 2001 contains a provision numbered 4AB. In FBR’s consolidated text it is printed at the end of section 4, after sub-section (6), rather than as a separate section with its own heading. It says:

“Subject to this Ordinance, a surcharge shall be payable by every individual and association of persons at the rate of ten percent of the income tax imposed under Division I of Part I of the First Schedule where the taxable income exceeds rupees ten million”

Its proviso, as it reads after the Finance Act, 2026, says that “in case of an individual deriving income chargeable under the head “Salary”, no surcharge shall be payable.”

So there are three conditions for a sole proprietor:

1. You are an individual (or an association of persons).
2. Your taxable income for the year exceeds Rs. 10 million.
3. You do not derive any income under the head “Salary”.

How does it work in practice?

The surcharge is a percentage of tax, not of income. First the Division I tax is worked out on taxable income using the clause (1) table. Then ten percent of that tax is added.

For tax year 2027, a sole proprietor’s taxable income above Rs. 5,600,000 falls in the top row of the clause (1) table: Rs. 1,610,000 plus 45% of the amount over Rs. 5,600,000. Anyone crossing Rs. 10 million is therefore already in that band.

Worked example (illustrative figures)

Farhan trades cloth in Faisalabad. He has no salary. His taxable income for tax year 2027 is Rs. 12,000,000.

1. Amount over Rs. 5,600,000: Rs. 12,000,000 minus Rs. 5,600,000 = Rs. 6,400,000.
2. 45% of Rs. 6,400,000 = Rs. 2,880,000.
3. Division I tax: Rs. 1,610,000 + Rs. 2,880,000 = Rs. 4,490,000.
4. Taxable income exceeds Rs. 10 million, so section 4AB applies: 10% of Rs. 4,490,000 = Rs. 449,000.
5. Total of Division I tax and surcharge: Rs. 4,939,000, before any tax credits.

What happens right at the line? At taxable income of exactly Rs. 10,000,000, Division I tax is Rs. 1,610,000 + 45% of Rs. 4,400,000 = Rs. 3,590,000, and there is no surcharge. At Rs. 10,100,000, Division I tax is Rs. 1,610,000 + 45% of Rs. 4,500,000 = Rs. 3,635,000, and the surcharge is Rs. 363,500, for a total of Rs. 3,998,500. The extra Rs. 100,000 of income adds Rs. 408,500 to the bill. Section 4AB as printed contains no provision that softens this jump.

What if I have a salary too?

Read literally, the proviso removes the surcharge for any individual “deriving income chargeable under the head “Salary””. It does not say how large the salary must be, or that salary must be the main income. The Ordinance does not resolve whether a small salary next to a large business profit was intended to be enough, and this page does not resolve it either.

The footnotes in the official PDF show the history. The proviso was added by the Finance Act, 2025. Before the Finance Act, 2026 substituted its wording, the proviso charged individuals with salary income a surcharge at nine percent where taxable income exceeded Rs. 10 million. From the edition amended to 30 June 2026, that is replaced by “no surcharge shall be payable”.

Is this the same as super tax?

No. Section 4C imposes a separate super tax at the rates in Division IIB of Part I of the First Schedule, on a wider measure of income. Its rates and thresholds are not covered on this page.

Common mistakes

• Taking 10% of income. On Rs. 12,000,000 of income, 10% of income would be Rs. 1,200,000. The actual surcharge is 10% of the tax, Rs. 449,000.
• Applying it at Rs. 10 million exactly. The test is “exceeds rupees ten million”.
• Applying it to final tax. The surcharge is on tax imposed under Division I, the slab table. Income taxed separately as final tax is kept out of taxable income under section 4(5).

What to check in the official text

Read the end of section 4 in the Ordinance amended to 30 June 2026, where section 4AB and its footnotes appear, and clause (1) of Division I of Part I of the First Schedule for the rate table. Our site copy of section 4 runs the section 4AB text into sub-section (6), so the official PDF is clearer on layout.