Every year around budget time, social media fills with claims such as "the government is taking 35% of my salary" or "if I take a raise I will fall into a higher slab and lose money." Neither is how Pakistan's salary tax works. The system is built on marginal rates, and once you understand that idea, you can read any budget, estimate your own tax and judge job offers sensibly. This guide explains the concept from scratch, with a worked example, using the rates that apply from 1 July 2026. For the full rate table and monthly examples, see our dedicated FY 2026-27 slabs guide.
What is a tax slab?
A slab is a band of annual income with its own tax rate. Instead of applying one rate to your whole salary, the law divides income into bands and taxes each portion at the rate for its band. The first band, up to Rs 600,000 a year, has a rate of zero. The next band is taxed at 1%, the next at 11%, and so on up to 35% for the portion above Rs 7 million. Each rupee is taxed once, at the rate of the band it falls in.
A layer-by-layer example
Consider an employee earning Rs 250,000 a month, which is Rs 3,000,000 a year. The table breaks the income into the layers it passes through and shows the tax on each.
| Income layer (Rs) | Amount in layer | Rate | Tax on layer |
|---|---|---|---|
| 0 to 600,000 | 600,000 | 0% | 0 |
| 600,000 to 1,200,000 | 600,000 | 1% | 6,000 |
| 1,200,000 to 2,200,000 | 1,000,000 | 11% | 110,000 |
| 2,200,000 to 3,000,000 | 800,000 | 20% | 160,000 |
Add up the last column and you get Rs 276,000 a year, or Rs 23,000 a month. The employee's effective rate is that tax divided by total income, about 9.2%, even though the top slab touched was 20%. This is the difference between the marginal rate (the rate on your last rupee) and the effective rate (the average over all your income).
Marginal versus effective: why it matters
The marginal rate tells you how much of your next rupee of income you keep. If you are in the 20% band, a raise of Rs 10,000 a month leaves you with Rs 8,000 more. The effective rate tells you how heavily your income as a whole is taxed. Both are useful, but they answer different questions. Use the marginal rate when deciding whether overtime, a bonus or a side job is worthwhile, and the effective rate when comparing your total burden with someone else's.
Five common myths
- Myth 1: "A raise can reduce my take-home pay." It cannot. Only the extra rupees above a threshold are taxed at the higher rate.
- Myth 2: "Everyone pays 35%." The top rate applies only to income above Rs 7 million a year. Most salaried people have effective rates well under 20%.
- Myth 3: "If I am below Rs 600,000 I must still file." Tax may be nil, but filing is important to be on the Active Taxpayers List, which affects withholding on many transactions. Check current FBR rules for your situation.
- Myth 4: "Bonuses are taxed at a flat special rate." A bonus is generally added to your annual taxable income and taxed through the same slabs.
- Myth 5: "The slabs never change." They are reviewed in every budget. Last year's six slabs became eight in 2026-27.
How your employer deducts the tax
Employers estimate your annual taxable salary at the start of the tax year, calculate the annual tax using the slabs and deduct it in monthly instalments. If your pay changes during the year, through an increment or bonus, the remaining months are adjusted so that the total tax for the year is correct. This is why your monthly tax can change even if your salary does not.
Credits, rebates and other adjustments
The law allows certain tax credits and rebates in specific situations, for example for approved donations, certain pension or retirement contributions, and special treatment for particular professions such as teachers and researchers. Eligibility rules and limits change, so ask your tax consultant or check the Income Tax Ordinance for the current position before relying on them. A credit reduces your tax bill directly, which is different from a deduction, which reduces taxable income.
How to estimate your own tax in a minute
Multiply your monthly salary by 12, find the band that contains the result, take the fixed amount listed for that band and add the band's rate times the amount above its lower limit. Divide by 12 for the monthly figure. Or simply enter your salary in our salary tax calculator, which uses the current slabs and also shows what you would have paid under last year's.
Where this fits in the bigger picture
Income tax is only one deduction from pay. To understand the rest of the payslip, read how to read your salary slip, and to see your take-home across pay levels use the take-home pay chart. This article is general information, not tax advice.
How the slabs changed between 2025-26 and 2026-27
Comparing the two structures shows how the burden shifted. The lower bands were left alone, the middle bands were cut and an extra band was added to smooth the climb to the top rate.
| Annual income band (Rs) | FY 2025-26 rate | FY 2026-27 rate |
|---|---|---|
| Up to 600,000 | 0% | 0% |
| 600,001 to 1,200,000 | 1% | 1% |
| 1,200,001 to 2,200,000 | 11% | 11% |
| 2,200,001 to 3,200,000 | 23% | 20% |
| 3,200,001 to 4,100,000 | 30% | 25% |
| 4,100,001 to 5,600,000 | 35% | 29% |
| 5,600,001 to 7,000,000 | 35% | 32% |
| Above 7,000,000 | 35% plus surcharge above Rs 10m | 35% |
Using the slabs to plan
Knowing your marginal rate helps with practical choices. If you are near the top of a band, a one-off bonus may be taxed at the next band's rate, so ask whether it can be paid in a way that suits your plans. If you are weighing a second income, remember that it stacks on top of your salary and is taxed at your marginal rate unless a special regime applies. If you are negotiating, a raise of Rs 20,000 a month is worth different amounts after tax depending on your band, and knowing that lets you compare it fairly with benefits such as a provident fund contribution.
Frequently Asked Questions
What is a marginal tax rate?
It is the rate applied to the last rupee you earn, meaning the rate of the highest slab your income reaches. It is different from your effective rate, which is your total tax divided by your total income.
Can moving into a higher slab reduce my take-home pay?
No. Only the portion of income above the slab threshold is taxed at the higher rate, so a raise always leaves you with more money.
What is the effective tax rate on Rs 3 million a year?
About 9.2%, because the tax is Rs 276,000 on Rs 3,000,000 even though the highest slab touched is 20%.
Are bonuses taxed separately?
Generally a bonus is added to your annual taxable income and taxed through the same slabs, which may increase the tax deducted in the month you receive it.
How often do the slabs change?
They can change every budget. The Finance Act 2026-27 replaced the six slabs of the previous year with eight.