The Finance Act 2026, effective from 1st July 2026, has reshaped Pakistan’s personal income tax landscape for Tax Year 2027 (1st July 2026 to 30th June 2027). Salaried individuals receive rate cuts across four slabs, two new intermediate brackets, and the complete abolition of the Section 4AB surcharge — while business individuals and Associations of Persons (AOPs) continue under the same slab structure as last year, with a top rate of 45%. This guide by H.S. Advocate & Co., Lahore sets out both slab tables, compares the two regimes side by side, and works through real examples.
1. What Changed Under the Finance Act 2026 — At a Glance
Presented on 12th June 2026 and effective from 1st July 2026, the Finance Act 2026 made the following key changes to individual taxation for Tax Year 2027 (1st July 2026 to 30th June 2027):
| Measure | Position for Tax Year 2027 |
|---|---|
| Salaried slab rates | Reduced in four brackets: 23% → 20%, 30% → 25%, and the old 35% band above Rs. 4.1 million split into 29%, 32% and 35% tiers |
| Top salaried threshold | The 35% top rate now applies only above Rs. 7 million (previously Rs. 4.1 million) |
| Section 4AB surcharge — salaried | Fully abolished (was 9% of tax where income exceeded Rs. 10 million) |
| Section 4AB surcharge — business/AOP | Continues at 10% of tax where taxable income exceeds Rs. 10 million |
| Business/AOP slab rates | Unchanged — top rate remains 45% above Rs. 5.6 million |
| Tax-free threshold | Unchanged at Rs. 600,000 for both categories |
| “Late filer” category | Abolished from 1st July 2026 — only two categories remain: Filer (ATL) and Non-Filer |
| ATL surcharge (Section 182A) | Sharply increased for late filers: Rs. 25,000 (individuals), Rs. 50,000 (AOPs), Rs. 100,000 (companies) |
2. Salaried Individuals — Tax Year 2027 (1st July 2026 to 30th June 2027) Slab Rates
These rates apply where salary income exceeds 75% of taxable income (the statutory definition of a salaried case). Employers must apply these slabs to salary withholding under Section 149 of the Income Tax Ordinance, 2001 from the July 2026 payroll onwards.
| # | Taxable Income (Annual, PKR) | Fixed Tax | Rate on Excess |
|---|---|---|---|
| 1 | Up to 600,000 | — | 0% |
| 2 | 600,001 – 1,200,000 | — | 1% of amount exceeding 600,000 |
| 3 | 1,200,001 – 2,200,000 | 6,000 | + 11% of amount exceeding 1,200,000 |
| 4 | 2,200,001 – 3,200,000 | 116,000 | + 20% (was 23%) |
| 5 | 3,200,001 – 4,100,000 | 316,000 | + 25% (was 30%) |
| 6 | 4,100,001 – 5,600,000 | 541,000 | + 29% (was 35%) |
| 7 | 5,600,001 – 7,000,000 | 976,000 | + 32% (new slab) |
| 8 | Above 7,000,000 | 1,424,000 | + 35% of amount exceeding 7,000,000 |
2.1 Surcharge Abolished for Salaried Persons
The 9% surcharge under Section 4AB, previously charged on the tax liability of salaried individuals whose taxable income exceeded Rs. 10 million, stands withdrawn from Tax Year 2027 (1st July 2026 to 30th June 2027). For a salaried person in the top slab, this reduces the surcharge-adjusted marginal impact from roughly 38.15% back to a clean 35% — a saving of over half a million rupees a year for someone earning Rs. 1 million per month.
2.2 How Much Do Salaried Taxpayers Save?
| Annual Salary (PKR) | Tax — TY 2026 | Tax — TY 2027 | Annual Saving |
|---|---|---|---|
| 2,400,000 | 162,000 | 156,000 | 6,000 |
| 3,600,000 | 466,000 | 416,000 | 50,000 |
| 6,000,000 | 1,281,000 | 1,104,000 | 177,000 |
| 12,000,000 | 3,685,290 (incl. 9% surcharge) | 3,174,000 | 511,290 |
Figures assume fully taxable salary with no allowances, credits or adjustments. Verify your own numbers with the H.S. Advocate & Co. Income Tax Calculator.
3. Business Individuals & AOPs — Tax Year 2027 (1st July 2026 to 30th June 2027) Slab Rates
The Finance Act 2026 made no change to the non-salaried slab structure. Sole proprietors, freelancers, professionals, traders and AOPs continue to be taxed as follows:
| # | Taxable Income (Annual, PKR) | Fixed Tax | Rate on Excess |
|---|---|---|---|
| 1 | Up to 600,000 | — | 0% |
| 2 | 600,001 – 1,200,000 | — | 15% of amount exceeding 600,000 |
| 3 | 1,200,001 – 1,600,000 | 90,000 | + 20% of amount exceeding 1,200,000 |
| 4 | 1,600,001 – 3,200,000 | 170,000 | + 30% of amount exceeding 1,600,000 |
| 5 | 3,200,001 – 5,600,000 | 650,000 | + 40% of amount exceeding 3,200,000 |
| 6 | Above 5,600,000 | 1,610,000 | + 45% of amount exceeding 5,600,000 |
① The Section 4AB surcharge continues at 10% of the tax liability where taxable income exceeds Rs. 10 million — it was abolished only for salaried persons.
② For a professional firm AOP prohibited from incorporating by law or its regulatory body (e.g., a law firm or chartered accountancy practice), the maximum rate is capped at 40%.
③ Business individuals and AOPs remain liable to quarterly advance tax under Section 147, unlike salaried persons whose tax is withheld monthly by the employer under Section 149.
4. Salaried vs Business: Side-by-Side Comparison
The gap between the two regimes has widened significantly for Tax Year 2027 (1st July 2026 to 30th June 2027), since only the salaried side received relief:
| Annual Taxable Income (PKR) | Salaried — TY 2027 Tax | Business/AOP — TY 2027 Tax | Business Pays Extra |
|---|---|---|---|
| 1,200,000 | 6,000 | 90,000 | 84,000 |
| 2,400,000 | 156,000 | 410,000 | 254,000 |
| 3,600,000 | 416,000 | 810,000 | 394,000 |
| 6,000,000 | 1,104,000 | 1,790,000 | 686,000 |
| 12,000,000 | 3,174,000 (no surcharge) | 4,939,000 (incl. 10% surcharge) | 1,765,000 |
At Rs. 12 million of annual income, a business individual now pays roughly Rs. 1.77 million more than a salaried person with identical income. This differential makes entity and remuneration structuring a genuinely material decision — for a fuller treatment, see our comparison of Sole Proprietorship vs AOP vs Private Limited Company in Pakistan.
5. Who Counts as “Salaried” for Slab Purposes?
A taxpayer is charged under the salaried slabs only where salary income exceeds 75% of total taxable income for the year. If you draw a salary but also earn substantial business, professional or rental income that pushes salary below the 75% mark, the higher non-salaried slabs apply to your entire taxable income. Directors drawing remuneration from their own companies, consultants with mixed income streams, and partners in AOPs should have this composition reviewed before the tax year closes — restructuring after 30th June 2027 will not help for Tax Year 2027 (1st July 2026 to 30th June 2027).
6. Filer, Non-Filer & the New ATL Surcharge Under the Finance Act 2026
The Finance Act 2026 has restructured the compliance side of the regime as significantly as the rates themselves:
The “late filer” category is abolished. From 1st July 2026, the intermediate “late filer” classification (introduced by the Finance Act 2024, which carried enhanced withholding rates on property transactions) has been withdrawn. Only two categories now exist: Filer (on the ATL) and Non-Filer.
The ATL surcharge under Section 182A has been increased sharply. A taxpayer who files after the due date can only be restored to the Active Taxpayers List after paying the revised surcharge:
| Taxpayer Category | ATL Surcharge — Before FA 2026 | ATL Surcharge — From 1st July 2026 |
|---|---|---|
| Individual | Rs. 1,000 | Rs. 25,000 |
| AOP / Firm | Rs. 10,000 | Rs. 50,000 |
| Company | Rs. 20,000 | Rs. 100,000 |
An undertaking-based exemption is available. Under amended Section 182A, an individual may be included on the ATL without paying the surcharge by furnishing an undertaking to the Commissioner, in the prescribed form, that they will not purchase, acquire or obtain ownership or any beneficial interest in immovable property for six months from the date of the undertaking.
Non-filers still face 100% enhanced withholding. Under the Tenth Schedule, withholding tax rates generally remain doubled for persons not appearing on the ATL — across banking transactions, dividends, vehicle registration and property transfers. With the surcharge now at Rs. 25,000 for individuals and Rs. 50,000 for AOPs, filing by the due date is materially cheaper than restoring ATL status afterwards.
7. Practical Action Points from 1st July 2026
For employers and payroll departments: Salary withholding under Section 149 must reflect the new slabs from the July 2026 pay cycle. If an employee’s July deduction is identical to June, the old rates are still being applied and an over-deduction is accruing that will need adjustment or refund through the return.
For business individuals and AOPs: Since your slabs are unchanged, your Section 147 advance tax instalments for Tax Year 2027 (1st July 2026 to 30th June 2027) continue on the same basis — but note the interaction with revised withholding rates elsewhere in the Finance Act 2026, including the restructured property advance tax under Sections 236C/236K and the withholding regime summarised in our Income Tax Withholding Chart for Tax Year 2027.
For return filers: The return for Tax Year 2027 (1st July 2026 to 30th June 2027) will be due after 30th June 2027, ordinarily by 30th September 2027 for individuals and AOPs, subject to FBR notification. With the ATL surcharge now at Rs. 25,000 for individuals and Rs. 50,000 for AOPs, missing the deadline has become far more expensive — timely filing is the only reliable way to preserve Filer status and the reduced withholding rates that come with it. For a full walkthrough of the process itself — registration, the wealth statement, and payment — see our step-by-step IRIS filing guide, and if a return is ever selected for audit, our note on the first 15 days after an FBR audit notice covers what to do next.
Calculate Your Exact Tax Year 2027 Liability
Our free calculator applies these exact slabs — salaried, business/AOP, rental and agricultural — for Tax Years 2023 through 2027, including the correct surcharge treatment for each year and income type.
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