Key takeaways
- Taxable salary is gross salary minus exempt items; in Pakistan nearly every allowance, bonus and perquisite counts as salary.
- Reimbursed medical bills are exempt, and so is a medical allowance up to 10% of basic salary when there is no reimbursement facility.
- On a Rs 235,000 payslip with a Rs 15,000 exempt medical allowance, correct tax is Rs 17,000 a month, not Rs 20,000.
- Bonuses, raises, a mid-year job change and late corrections change when tax is collected, not the total owed for the year.
Gross salary is everything your employer pays you before deductions. Taxable salary is the part the income tax slabs actually apply to: gross salary minus the items the law exempts. In Pakistan almost every allowance counts as salary, so for most people the gap is small, and it mostly comes down to medical. When the income tax on your payslip looks higher than you expected, the cause is usually one of a handful of things this guide walks through, with an example you can copy.
What counts as salary
Under the Income Tax Ordinance, 2001, salary is broadly everything you receive from employment. PwC's Pakistan tax summary (reviewed August 2026) lists it as including:
- basic pay, leave pay and payment in lieu of leave
- overtime, bonuses, commissions, fees and gratuities
- allowances, including fixed monthly allowances such as house rent and utilities
- monetary and non-monetary perquisites, such as an employer-provided car or accommodation
- profits in lieu of salary, pensions, annuities and any tax your employer pays on your behalf
So a house rent allowance or a fuel allowance is not a tax-free extra. It is part of taxable salary unless a specific exemption applies.
What is usually left out
The exemption most salaried people use is medical:
- Reimbursed medical expenses for treatment or hospitalisation are exempt.
- A medical allowance of up to 10% of basic salary is exempt where the employer does not offer a reimbursement facility.
Two other items reduce what you are taxed on, though they are claimed differently:
- Zakat paid under the Zakat and Ushr Ordinance (for example, deducted from a bank account) is deducted from taxable income.
- Donations to approved non-profits give a tax credit at your average tax rate, on up to 30% of taxable income.
Other exemptions exist for specific schemes, such as approved provident and pension funds, and the rules depend on the fund. Your employer's payroll team or a tax adviser can tell you whether yours applies.
A worked example
Here is a monthly payslip, with tax worked out on the FY 2026-27 slabs.
| Payslip line | Monthly amount | Taxable? |
|---|---|---|
| Basic salary | Rs 150,000 | Yes |
| House rent allowance | Rs 60,000 | Yes |
| Utilities allowance | Rs 10,000 | Yes |
| Medical allowance (10% of basic, no reimbursement facility) | Rs 15,000 | No |
| Gross salary | Rs 235,000 | |
| Taxable salary | Rs 220,000 |
Taxed on the correct figure, Rs 220,000 a month is Rs 2,640,000 a year. That sits in the 20% slab: Rs 116,000 plus 20% of the Rs 440,000 above Rs 2,200,000, so Rs 204,000 a year, or Rs 17,000 a month.
If payroll mistakenly taxed the full gross of Rs 235,000 (Rs 2,820,000 a year), the tax would be Rs 116,000 plus 20% of Rs 620,000, so Rs 240,000 a year, or Rs 20,000 a month. That is Rs 3,000 a month, Rs 36,000 a year, more than you owe. You can test both figures in the salary tax calculator for Pakistan; it applies the slabs to whatever taxable salary you enter.
Why the tax on your payslip can look different
Employers deduct income tax from salary under section 149 of the Income Tax Ordinance, 2001, based on their estimate of your salary for the whole year. The monthly figure can drift from a simple "annual tax ÷ 12" for several reasons:
- An exempt allowance was taxed. As in the example above, if the medical allowance is not treated as exempt, the deduction is higher.
- A bonus or arrears month. A bonus is added to your annual salary and taxed at the slab it reaches, so the month it is paid carries a much larger deduction.
- A raise or a mid-year join. When your salary changes, payroll re-estimates the year, and the months that are left can carry a catch-up amount.
- A previous job in the same year. If you changed jobs, your new employer may not know what you earned and what was deducted before. Your total salary for the year still decides the slab.
- Corrections. Under-deduction in earlier months is often recovered in the last months of the tax year, which ends on 30 June.
None of these change the tax you finally owe for the year. They change when it is collected. Your annual return reconciles the total: deductions above your actual liability can be claimed back, and any shortfall is paid.
How to check your own payslip
- List every line on the payslip and mark which ones are exempt. For most people that is only the medical allowance or medical reimbursement.
- Subtract the exempt lines from gross to get monthly taxable salary.
- Multiply by 12 and work out the tax on the slabs, or enter the figure in the calculator.
- Divide by 12 and compare with the income tax line on the payslip.
- If they differ, check for a bonus, arrears or a salary change that month before raising it with payroll.
Our step-by-step guide to calculating salary tax for FY 2026-27 shows the slab arithmetic in more detail, and the take-home table lists common salaries already worked out. If you pay zakat yourself, the zakat calculator works out the amount due on savings, gold and other assets.
This guide covers salaried income for FY 2026-27 and is general information, not tax advice. Exemptions have conditions, so confirm anything that affects your return with your employer or a tax adviser.
Frequently asked questions
Gross salary is everything your employer pays before deductions. Taxable salary is gross salary minus exempt items, and it is the figure the income tax slabs apply to. For most salaried people the main exempt item is medical: reimbursed medical expenses, or a medical allowance up to 10% of basic salary where no reimbursement facility is offered.
Yes. Allowances, including fixed monthly allowances for house rent and utilities, are part of salary under the Income Tax Ordinance, 2001, and are taxed with the rest of your pay. Only items with a specific exemption, such as an eligible medical allowance, are left out of taxable salary.
Reimbursement of medical or hospital expenses is exempt. Where your employer does not offer a reimbursement facility, a medical allowance of up to 10% of your basic salary is exempt. On a Rs 150,000 basic salary that is up to Rs 15,000 a month, which is subtracted before the slabs are applied.
Common reasons are an exempt allowance that payroll taxed, a bonus or arrears paid that month, a raise that made payroll re-estimate the year, income from a previous job in the same tax year, or a catch-up for under-deduction in earlier months. The annual return settles the total, so any excess deduction can be claimed back.
Yes. Zakat paid under the Zakat and Ushr Ordinance, for example when it is deducted from a bank account, is deducted from taxable income. Donations to approved non-profits work differently: they give a tax credit at your average tax rate on up to 30% of taxable income.