Key Budgetary Changes Made Through Finance Act 2026:

The Federal Government has approved a 50% revision in the monthly conveyance allowance for civil servants in BPS-1 to BPS-22. The revised conveyance allowance rates apply from 1 July 2026 under the existing terms and conditions.

What the New Allowance Rates Mean for Government Employees:

The Federal Board of Revenue (FBR) has formally issued an official intimation directive regarding the major withholding tax amendments and income tax adjustments enacted under the Finance Act, 2026. Released by the Office of the Inland Revenue Officer (IRO), Unit-III, Withholding Zone, RTO Rawalpindi, this official letter provides critical statutory updates affecting salaried individuals, corporate entities, service providers, and real estate transactions across Pakistan. Primary focus is given to Section 149 of the Income Tax Ordinance, 2001, where an updated, multi-tiered salary tax slab rate schedule has been put into effect for the current fiscal year. The revised salary tax structure maintains a 0% tax threshold for annual earnings up to Rs. 600,000, while establishing progressive tax brackets up to 35% plus fixed amounts for higher-income brackets exceeding Rs. 7,000,000. Furthermore, the notification outlines key structural changes including the complete abolition of the 9% surcharge on high-salary earners under Section 4AB, revised withholding tax rates under Section 153(1)(b) for freelancers, software developers, lawyers, and media services, and the explicit omission of Section 7E regarding deemed income tax. Additionally, modified advance tax rates for property buyers and sellers under Sections 236C and 236K have been enforced. All employer institutions, including the Military Accountant General (MAG) Office, disbursing officers, and withholding agents are required to implement these revised tax rates effective from July 1, 2026.The Notification Describes;

No. 3(1)R-5/2010-P-001

GOVERNMENT OF PAKISTAN
Office of The
Inland Revenue Officer (IRO)
Unit-III, Withholding Zone, RTO Rwp
Main Income Tax Building, 12-Mayo Road, Rawalpindi

No. Unit-III/ 06-   

Dated: 09.07.2026

The Military Accountant General
MAG Office, Near Kamaran Market
Kashmir Road, Saddar Rawalpindi

Sub:                    BUDGETARY CHANGES MADE THROUGH FINANCE ACT, 2026 INTIMATION REGARDING.

1.                          It is intimated that the following amendments in different provisions of withholding taxes have been made through Finance Act, 2026: –

2.                          SALARY – SECTION 149: Every person responsible for paying salary to an employee shall, at the time of payment, deduct tax from the amount paid as per clause (2) of Division I, Part I, of the First Schedule of the Income Tax Ordinance, 2001. Through Finance Act, 2026 the Federal Government has amended the salary tax rates as per table below and for more detail please see section 149 read with clause (2) of Division I, of Part I, of the First Schedule of the Income Tax Ordinance, 2001:-

S.No.	Taxable Income	Rate of Tax
1.	Where taxable income does not exceed Rs. 600,000/-.	0%
2.	Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 1,200,000/-.	1% of the amount exceeding Rs. 600,000/-.
3.	Where taxable income exceeds Rs. 1,200,000/- but does not exceed Rs. 2,200,000/-.	Rs. 6,000 + 11% of the amount exceeding Rs. 1,200,000/-.
4.	Where taxable income exceeds Rs. 2,200,000/- but does not exceed Rs. 3,200,000/-.	Rs. 116,000 + 20% of the amount exceeding Rs. 2,200,000/-.
5.	Where taxable income exceeds Rs. 3,200,000/- but does not exceed Rs. 4,100,000/-.	Rs. 316,000 + 25% of the amount exceeding Rs. 3,200,000/-.
6.	Where taxable income exceeds Rs. 4,100,000/- but does not exceed Rs. 5,600,000/-.	Rs. 541,000/- + 29% of the amount exceeding Rs. 4,100,000/-.
7.	Where taxable income exceeds Rs. 5,600,000/- but does not exceed Rs. 7,000,000/-.	Rs. 976,000 + 32% of the amount exceeding Rs. 5,600,000/-.
8.	Where taxable income exceeds Rs. 7,000,000/-.	Rs. 1,424,000 + 35% of the amount exceeding Rs. 7,000,000/-.

3.                          CHANGES IN SECTION 4AB : –

                              Before amendment in section 4AB through Finance Act, 2026 in case of an individual deriving income chargeable under the head “Salary”, a surcharge was payable at the rate of nine percent imposed under Division I of Part I of the First Schedule where the income exceeds rupees ten million in a tax year. Now after Finance Act, 2026, no surcharge shall be payable, where the taxable income exceeds rupees ten million in a tax year.

4.                          WITHHOLDING TAX RATE UNDER SECTIONS 153(1)(b) AS PER DIVISION III, OF PART III, OF FIRST SCHEDULE OF THE INCOME TAX ORDINANCE, 2001.

(1)        in sub-paragraph (i)

(a)         for the expression “6%”, the expression “7%” shall be substituted; and

(b)        for the words “asset management companies”, the words “non-banking finance company as defined in clause (35B) of section 2 of this Ordinance” shall be substituted;

(2)        for sub-paragraph (ii)

the following new sub-paragraph shall be substituted; namely:-
“(ii) wherein 15% in the case of independent professional services such as doctors, lawyers, architects, accountants, software engineers or developers, working independently,”

(3)        after sub-paragraph (ii),

               substituted as aforesaid, the following new subparagraphs shall be added, namely:-
(iii) 1.5% of the gross amount payable to electronic and print media in case of advertising services;

(iv) 12% of the gross amount payable to companies for rendering or providing terminal and port operating services; and

(v) 14% of the gross amount in the case of services other than those covered in sub-paragraphs (i), (ii), (iii) and (iv).

5.           The following are the amendments made through Finance Act, 2026 which pertains to registering and transferring authorities of immovable property.

6.           TAX ON DEEMED INCOME: – It is intimated that section 7E of the Income Tax Ordinance, 2001 has been omitted through Fin Act, 2026.

7.           ADVANCE TAX ON SALE OR TRANSFER OF IMMOVABLE PROPERTY: –

It is intimated that amendments are made in Division X, of Part IV of the First Schedule of the Income Tax Ordinance, 2001 through Finance Act, 2026. The rate of advance tax to be collected under section 236C shall be 2.75% of the gross amount of the consideration received in the case of filer and in the case of non-filer no change has been introduced through Fin Act, 2026.

8.           ADVANCE TAX ON PURCHASE OF IMMOVABLE PROPERTY: –

It is intimated that amendments are made in Division XVIII, of Part IV of the First Schedule of the Income Tax Ordinance, 2001 through Finance Act, 2026. The rate of tax, to be collected, under section 236K shall be 1.25% of the fair market value of the immovable property in the case of filer and in the case of non-filer no change has been introduced through Fin Act, 2026.

9.           It is advised that the budgetary changes elaborated in preceding paras may please be implemented, e.f. 01.07.2026 in true letter and spirit. For further details please visit the Finance Act, 2026 as well as the Income Tax Ordinance, 2001. Soft copies of both are available on FBR portal, please.

10.        Receipt of this letter may please be acknowledged.

Inland Revenue Officer

Withholding Tax & Property Tax Amendments 2026 Summary:

The official release of Notification No. Unit-III/06- by the Federal Board of Revenue represents a comprehensive restructuring of withholding taxes and property transaction frameworks under the Finance Act, 2026. Beyond the immediate recalibration of salaried income tax slabs, these legislative updates introduce essential relief and structural adjustments across various economic sectors. A major highlight for executive professionals earning above Rs. 10 million is the complete removal of the 9% surcharge under Section 4AB, effectively capping maximum marginal tax liability at the 35% base rate. In parallel, independent freelancers and service professionals—including software developers, doctors, lawyers, and accountants—face a standardized 15% withholding tax under Section 153(1)(b), establishing uniform compliance parameters for the gig economy and professional service providers. In the real estate sector, the total omission of Section 7E provides much-needed relief to property holders by abolishing tax on deemed income, thereby revitalizing property investment sentiment. Concurrently, updated advance tax rates under Sections 236C (2.75%) and 236K (1.25%) offer preferential treatment to active tax filers, enforcing a clear compliance incentive over non-filers. Financial officers, payroll managers, and individual taxpayers are strongly advised to align their withholding deductions and filing strategies with these statutory guidelines to ensure full compliance with FBR directives.

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Frequently Asked Questions

What is the minimum salary threshold for tax exemption under FBR Salary Tax Slabs 2026?

Under the revised Section 149 of the Income Tax Ordinance 2001 enacted via Finance Act 2026, salaried individuals earning up to Rs. 600,000 per annum are completely exempt from income tax (0% tax rate).

What are the new advance tax rates for property buyers and sellers (filers) under Sections 236C and 236K?

For active tax filers, the advance tax rate on the sale/transfer of immovable property under Section 236C is set at 2.75%, while the advance tax rate on the purchase of immovable property under Section 236K is set at 1.25% of the fair market value.