How Business Income Tax Is Calculated in Pakistan (2025–26)
Sole proprietors, traders, and most freelancers are taxed as non-salaried individuals under the Income Tax Ordinance, 2001. Tax is charged on your net business income — gross receipts minus allowable business expenses under Section 20 (rent, salaries, utilities, depreciation, and other costs incurred to earn the income). These slabs are notably higher than the salaried slabs, so understanding them matters for anyone running a business or working independently.
Business / Non-Salaried Slabs — Tax Year 2025–26
| Annual Taxable Income | Tax |
|---|---|
| Up to Rs. 600,000 | 0% |
| 600,001 – 1,200,000 | 15% of amount over 600,000 |
| 1,200,001 – 1,600,000 | Rs. 90,000 + 20% of amount over 1,200,000 |
| 1,600,001 – 3,200,000 | Rs. 170,000 + 30% of amount over 1,600,000 |
| 3,200,001 – 5,600,000 | Rs. 650,000 + 40% of amount over 3,200,000 |
| Above 5,600,000 | Rs. 1,610,000 + 45% of amount over 5,600,000 |
Worked Example
Say your net business profit for the year is Rs. 2,000,000 (after deducting business expenses). This falls in the 1,600,001 – 3,200,000 slab: tax = Rs. 170,000 base + 30% of (2,000,000 − 1,600,000) = Rs. 170,000 + Rs. 120,000 = Rs. 290,000 for the year.
Frequently Asked Questions
Are freelancers taxed at these slabs?
Most local-service freelancers are, yes. But freelancers earning from IT or IT-enabled service exports through banking channels fall under the final tax regime (Section 154A) — 0.25% if PSEB-registered, otherwise 1% — not these slabs.
What counts as a business expense?
Any expense wholly and exclusively incurred to earn business income — rent, staff salaries, utilities, supplies, and depreciation on assets. Personal expenses are not deductible.
Why are these rates higher than salaried rates?
Salaried individuals get concessional slabs (1% at the second bracket); non-salaried income starts at 15% above Rs. 600,000 and tops out at 45%. Always file to stay on the ATL and avoid higher withholding everywhere else.