Why Is Income Tax Deducted from Your Salary in Pakistan?
Many a salaried person in Pakistan wonders why the income tax is deducted every month from their salary, even before the amount is credited into their bank account. The system is called tax deduction at source and it is a requirement of law under Section 149 of the Income Tax Ordinance, 2001.
Under this law, the employer acts as a tax collector on behalf of FBR. This means employers have to calculate, deduct, and deposit income tax from employees’ salaries every month.
How Tax Deduction Works on Salaries
Section 149(1) casts the obligation upon the employer to deduct tax at the time of payment of salary. The tax would be calculated on the employee’s estimated annual salary applying the tax slabs as prescribed in First Schedule.
Instead of deducting one lump sum, FBR uses an average tax rate method. Which simply means:
• The total tax to be paid for the whole year is first calculated.
• That tax is further divided into equal monthly deductions
• Tax is deducted evenly throughout the year
Where applicable, super tax under Section 4AB will also be added. Employers are allowed to adjust tax if the employee furnishes valid documents for tax credits (for instance, under Sections 61 and 63) or if tax has already been deducted under another head.
Special Rules for Pensions and Other Payments
For pension income, Section 149(1A) provides relief. If a retired person is below 70 years of age, tax is deducted only if the annual pension exceeds Rs 10 million. Payments such as directors’ fees or board meeting fees are treated differently. Under Section 149(3), a 20% tax is deducted on the gross amount. This tax is adjustable when the person files their annual return.
Why FBR Uses This System
Salary tax deduction at source remains, in 2025, one of the best ways FBR can:
• Ensure regular, timely collection of taxes
• Reduce tax evasion and under-reporting
• Ease tax compliance for salaried people
• Assist employees in avoiding heavy tax payments at the end of the financial year.
What Salaried Individuals Should Do
In order to avoid issues and remain compliant:
• Check salary slips: regular checks are important to ensure correct tax deduction.
• Share documents concerning tax credit in time with your employer
• Annual filing of your income tax return
• Avail refund if excess tax has been deducted
Final Thoughts
The salient tax deduction at source is a legally well-organized method through which the collection can be less burdensome and on an equal footing. Understanding Section 149 helps salaried individuals better track their taxes, avoid mistakes, and manage their annual tax position with complete confidence in the year 2025 and beyond.