Islamabad, August 2025 – The Federal Board of Revenue (FBR) has issued the latest withholding tax card for pension income applicable for the tax year 2025-26.
The notification clarifies tax obligations for retired individuals, particularly pensioners under the age of 70, bringing important changes after amendments made through the Finance Act 2025.
According to the FBR, withholding tax on pension will be collected under Section 149(IA) of the Income Tax Ordinance, 2001. Under the new rules, any pension amount up to Rs. 10 million per year will remain fully exempt from tax. However, where annual pension income exceeds Rs. 10 million, the excess amount will be subject to a 5% tax along with an additional surcharge of 10%.
The FBR explained that pensioners above 70 years of age will continue to enjoy exemption, even if their annual receipts surpass the Rs. 10 million threshold, according to PkRevenue report. In cases where a retired employee continues to work with the same employer or any associated company, the treatment of their pension will follow the normal income tax slab rates applicable under Section 149, Division I of Part I of the First Schedule of the Ordinance.
It is also important to note that private pension disbursed by Pension Fund Managers under the Voluntary Pension Scheme Rules 2005, as well as other retirement benefits not directly received from a former employer, will be charged under Section 39 of the Ordinance. However, certain benefits such as commutation of pension, gratuity, or up to 50% withdrawal from a voluntary pension account under specified conditions, will continue to remain exempt under Part I of the Second Schedule.
Previously, pension income received from a former employer enjoyed exemptions under clauses (8) and (9) of the Ordinance. These exemptions were removed by the Finance Act 2025, thereby bringing such payments into the tax net. For clarity, the FBR issued Income Tax Circular No. 1 of 2025-26, explaining that withholding agents (employers) are responsible for deducting applicable taxes and surcharge at the prescribed rates.
The new withholding tax card is expected to create greater transparency in the taxation of pensions while ensuring consistency across both public and private retirement benefits.