Karachi, June 11, 2025 – In a move set to impact millions of savers and investors across the country, the government has proposed a notable increase in the tax rate on profit earned from bank deposits under the Finance Bill 2025.
The revised rate—if approved by the National Assembly—will come into effect from July 1, 2025, and is aimed at increasing revenue from non-corporate individuals earning passive income.
The amendment has been introduced through changes to Section 7B of the Income Tax Ordinance, 2001, which governs the taxation of profit on debt. According to the proposal, the rate of tax for individuals (excluding companies) receiving profit on deposits from banking companies or financial institutions will rise from the existing 15% to 20%.
The new provision reads:
• 20% tax shall apply to the yield or profit paid by any banking company or financial institution on accounts or deposits maintained with them.
• 15% tax shall apply to profit on debt in cases not involving a banking company or financial institution.
Previously, all such profit on debt was taxed uniformly at a rate of 15%. The revised rates mark a sharp increase for those who rely on bank deposits for their earnings, such as pensioners, fixed-income investors, and small savers.
Section 7B outlines that this tax is applicable to every person—except companies—who receives profit on debt from any institution listed under Section 151 of the Income Tax Ordinance. However, the section exempts any profit on debt that either falls under tax-exempt categories or exceeds Rs5 million, in which case different rules may apply.
The Finance Bill 2025 is part of the government’s broader strategy to widen the tax base and increase non-tax revenue in line with IMF recommendations. By targeting passive income such as bank deposit profit, the government hopes to bridge fiscal gaps without further burdening the salaried class.
Financial analysts believe the higher rate may discourage large deposits in banks, pushing investors toward alternative instruments. However, it could also drive improved compliance and reporting, thereby strengthening the formal financial system in the long run. The final fate of this amendment now lies with the National Assembly’s approval in the coming weeks.