Income sources under Pakistan tax law

Day 5: Income Sources in Pakistan Tax Law

Breakdown of Salary, Business, Property, Capital Gains, and Other Income

Understanding your sources of income is critical for filing an accurate income tax return in Pakistan. The Federal Board of Revenue (FBR) classifies income into different categories—each with its own set of rules, exemptions, and tax rates.

Whether you’re a salaried employee or a real estate investor, here’s a clear breakdown of each income head under Pakistan’s tax laws.

💼 1. Salary Income

This includes:

Basic salary
Allowances (house rent, medical, conveyance, etc.)
Bonuses, commissions, and benefits
Provident fund contributions (taxable beyond threshold)
Tax paid by employer on behalf of employee (grossing up)

Key Notes:

Tax is withheld at source by employers
Exemptions may apply to certain allowances like travel and medical within limits
Complete breakup is reported in IRIS under “Salary” tab

🏢 2. Income from Business or Profession

This applies to:

Sole proprietors
Freelancers
Traders
Service providers (like consultants or IT professionals)

Income includes:

Sales revenue
Service income
Other operating income

Allowable expenses like rent, utilities, depreciation, salaries, and professional expenses are deductible before arriving at net taxable income.

Important Tip: Maintain bank statements and expense records to support claims.

🏠 3. Income from Property

Rental income from:

Residential or commercial properties
Lease agreements

Taxable amount = Gross Rent – Allowable Deductions

Allowable deductions may include:

1/5th of gross rent (for repairs and maintenance)
Property tax
Collection charges

Rental income is taxed at separate slab rates under Section 15 of the Income Tax Ordinance, 2001.

📈 4. Capital Gains

Gains from the sale of capital assets, such as:

Property
Shares
Mutual funds
Cryptocurrencies (treated under capital gain principles, though not clearly regulated)

Key Points:

Gain = Sale price – Cost of acquisition
Holding period impacts tax rate (short-term vs long-term gain)
Capital gains on immovable property taxed under Section 37
Capital gains on listed shares taxed under Section 37A

💳 5. Income from Other Sources

This includes:

Dividend income
Interest (bank profit)
Gifts (other than from immediate family)
Foreign remittances not via banking channel
Prizes and lottery winnings

Different tax treatments and withholding tax rates apply. This income is reported under “Other Sources” in IRIS.

🧮 Summary Table – Income Heads Under Pakistan Tax Law

Income Source	Tax Treatment	Where to Report
Salary	Slab-based tax; employer deducts at source	Salary Section
Business/Profession	Net profit after allowable expenses	Business Section
Property	Tax on gross rent minus 1/5 deduction	Property Section
Capital Gains	Based on holding period; different rates	Capital Gains Section
Other Sources	Fixed withholding on dividends, interest, etc.	Other Sources Section