Finance Act 2026 introduces lower tax rates and revised income slabs for salaried individuals from FY2026-27

ISLAMABAD: The revised income tax rates for salaried individuals have officially come into force from July 1, 2026, following the enactment of the Finance Act, 2026, introducing a new tax structure for the fiscal year 2026-27.

The new tax regime aims to provide relief to lower and middle-income salaried employees while implementing revised tax slabs for higher income groups as part of the federal government’s budgetary measures.

Under the Finance Act, salaried individuals with an annual taxable income of up to Rs600,000 will continue to enjoy complete exemption from income tax.

Taxpayers earning more than Rs600,000 but not exceeding Rs1.2 million annually will pay income tax at 1 percent of the amount exceeding Rs600,000.

For salaried persons with annual taxable income exceeding Rs1.2 million but not more than Rs2.2 million, the tax liability has been fixed at Rs6,000, plus 11 percent of the amount exceeding Rs1.2 million.

Individuals earning above Rs2.2 million and up to Rs3.2 million will pay Rs116,000, in addition to 20 percent of the amount exceeding Rs2.2 million.

Those with annual taxable income of more than Rs3.2 million but not exceeding Rs4.1 million will be required to pay Rs316,000, plus 25 percent of the amount exceeding Rs3.2 million.

For taxpayers earning more than Rs4.1 million and up to Rs5.6 million, the Finance Act prescribes a tax of Rs541,000, along with 29 percent of the amount exceeding Rs4.1 million.

Individuals whose annual taxable income exceeds Rs5.6 million but does not exceed Rs7 million will pay Rs976,000, plus 32 percent of the amount exceeding Rs5.6 million.

For the highest income bracket, salaried individuals earning more than Rs7 million annually will be liable to pay a fixed tax of Rs1.424 million, in addition to 35 percent of the amount exceeding Rs7 million.

The revised salary tax slabs form part of the government’s broader fiscal reforms introduced through the Finance Act, 2026, which became effective on July 1, 2026. The new rates apply to taxable salary income earned during the fiscal year 2026-27 and are expected to influence monthly withholding tax deductions by employers across Pakistan.