Pakistani employers must withhold income tax from salaried employees every month and deposit it with the FBR. The tax is progressive: annual taxable salary falls into a slab, and the liability is a fixed amount for that slab plus a percentage of the income above the slab floor. One-twelfth of the annual figure is withheld from each monthly salary.
The calculation, step by step
The mechanics are the same every year even when the rates change, so it is worth understanding the shape rather than memorising numbers.
- Annualise the employee’s taxable salary for the tax year (July to June).
- Find the slab that annual figure falls into.
- Apply that slab’s fixed amount, then add the stated percentage of the income above the slab floor.
- Divide the annual liability by twelve to get the monthly withholding.
- Adjust when salary changes mid-year, so the remaining months absorb the difference.
Why mid-year changes catch people out
An increment, a bonus or a promotion changes the annual figure, which can move the employee into a higher slab. If you keep withholding the old monthly amount, the employee ends the year underpaid on tax and has to settle a lump sum they were not expecting — a conversation no HR team enjoys in June.
The correct treatment is to recompute the annual liability when the salary changes and spread the remaining tax across the months left in the tax year. Doing that by hand across a few hundred employees is where spreadsheets usually fail.
What changes in July, and what should not
The Finance Act typically adjusts slabs with effect from 1 July. Two things matter operationally: the new rates must apply from the July payroll, and the old rates must still apply if you ever re-run or correct a period from the previous tax year.
Systems that store only "the current slabs" get the second part wrong, silently. Storing tax as versioned data per tax year — a tax year holding a slab set, and payroll resolving the version by the period being calculated — is what makes historical corrections behave correctly.
The employer’s monthly checklist
Whatever system you use, these are the steps that must happen.
- Recompute liability for anyone whose salary changed.
- Withhold the monthly amount from each salaried employee.
- Deposit the withheld tax with the FBR within the prescribed timeline.
- Keep the calculation evidence — a payroll register that shows how each figure was reached.
- Give employees visibility of their annual projection, not just this month’s deduction.
Questions
Is income tax deducted on the whole salary or only the amount above the threshold?
Only the portion inside each slab is taxed at that slab’s rate. Income below the first threshold is taxed at zero, and higher rates apply only to the income above each slab floor — not to the entire salary.
What happens if an employee joins mid-year?
The annual figure is based on the salary they will actually earn in that tax year, and prior employment income should be taken into account if declared. The remaining months carry the resulting liability.
General information for Pakistani employers, not legal or tax advice. Statutory rates change with each Finance Act — verify current figures before relying on them.
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