If you run payroll in Pakistan, Section 149 of the Income Tax Ordinance, 2001 is the single most important line item on every payslip you process. It is the legal authority that requires an employer to withhold income tax from an employee's salary, deposit it with the FBR, and file it correctly every quarter. Get it wrong and you face a default surcharge of 12% per annum, plus a penalty equal to 10% of the tax not deducted — on top of the tax itself.
This guide walks through everything a Pakistani HR or finance lead needs to know about Section 149 for fiscal year 2025–26 (running 1 July 2025 to 30 June 2026): how the tax is calculated, the current salary slabs, real worked examples, the employer filing obligations, and the three mistakes that quietly generate most FBR notices.
What is Section 149, in plain language?
Section 149 makes the employer responsible for collecting income tax from salaried employees. Instead of each worker depositing tax directly, the employer deducts tax at source every month, pays it to the FBR by the 7th of the following month, and issues a certificate (Form 149 / CPR) to the employee at year-end. The mechanism is called withholding at source, and the employer is referred to in the law as the withholding agent.
The key phrase in the statute is "average rate of tax". The employer is not asked to apply a single slab rate to each month's salary. Instead, the employer must estimate the employee's annual taxable income, calculate the total tax liability for the full year using the slab table, and divide that amount across the months remaining in the fiscal year. This averaging is what smooths out monthly withholding even if the employee receives bonuses or variable allowances.
Who does Section 149 apply to?
Section 149 applies to every person in Pakistan whose employer pays them a salary — whether they are employed full-time, part-time, on contract, or on probation. It covers:
- Private sector salaried employees
- Government and semi-government employees
- Employees of NGOs, educational institutions and hospitals
- Expatriates hired locally on a Pakistani payroll
- Directors who draw a salary from their own company
It does not cover freelancers, consultants, or vendors paid against an invoice — those fall under different withholding sections (153 for services, 153A for advertising, etc.). If the relationship is employer–employee, Section 149 applies.
Salary tax slabs for fiscal year 2025–26
The Finance Act 2025 retained the progressive slab structure introduced in the previous year but adjusted thresholds slightly. The rates below apply to annual taxable salary income (after deducting any legally allowed reliefs):
- Up to PKR 600,000: 0% — no tax payable
- PKR 600,001 to 1,200,000: 2.5% of the amount exceeding 600,000 (this slab was reduced from 5% in the prior year)
- PKR 1,200,001 to 2,200,000: PKR 15,000 + 11% of the amount exceeding 1,200,000
- PKR 2,200,001 to 3,200,000: PKR 125,000 + 23% of the amount exceeding 2,200,000
- PKR 3,200,001 to 4,100,000: PKR 355,000 + 30% of the amount exceeding 3,200,000
- Above PKR 4,100,000: PKR 625,000 + 35% of the amount exceeding 4,100,000
Remember: these are annual rates. Monthly withholding is annual tax ÷ 12.
How to calculate Section 149 tax, step by step
Assume an employee earns PKR 150,000 per month in base salary, plus a PKR 30,000 monthly house rent allowance and a PKR 10,000 medical allowance. Total gross monthly salary is PKR 190,000.
- Annualise the salary: 190,000 × 12 = PKR 2,280,000
- Apply exemptions: Medical allowance up to 10% of basic salary is exempt under Clause 139 of the Second Schedule. 10% of 150,000 × 12 = PKR 180,000 exempt. Taxable income becomes 2,280,000 − 120,000 (actual medical paid) = PKR 2,160,000.
- Locate the slab: 2,160,000 falls in the PKR 1,200,001–2,200,000 slab.
- Calculate tax: 15,000 + 11% × (2,160,000 − 1,200,000) = 15,000 + 105,600 = PKR 120,600 annual tax.
- Monthly withholding: 120,600 ÷ 12 = PKR 10,050 deducted from each monthly payslip.
If the employee joins midway through the year, the same annual tax is spread across only the remaining months. If the employee leaves before year-end, the employer must either refund excess withholding or issue a final Form 149 showing tax actually deducted so the employee can reconcile at return filing.
Employer obligations under Section 149
Withholding the right amount is only half the job. The FBR also requires:
- Deposit: Pay the deducted amount into the federal treasury (via any authorised bank or online IRIS payment) by the 7th of the following month. Late payments attract a default surcharge of 12% per annum.
- Monthly statement: File a statement under Rule 44 of the Income Tax Rules listing every employee, salary paid, and tax deducted. Due by the 15th of the following month via the IRIS portal.
- Annual statement under Section 149: File a consolidated statement by 31 August each year summarising salary, tax, and exemptions for every employee for the preceding fiscal year.
- Issue certificates: Give each employee a Certificate under Section 164 (Form 149 certificate) for the tax deducted. Employees attach this to their personal return to claim the withheld tax.
Three mistakes that trigger FBR notices
Having processed payroll for 500+ Pakistani businesses, we see the same three issues repeatedly:
1. Forgetting to re-run average-rate calculations when salary changes mid-year. A pay raise in February is not a "February event" — it changes the projected annual salary, which changes the annual tax liability, which changes the monthly withholding for the remaining months. Most manual payroll spreadsheets fail to re-average, leading to under-withholding and a year-end surprise.
2. Missing the exemptions for medical and provident fund. The medical allowance exemption (10% of basic) and recognised provident fund contributions (up to PKR 150,000) are frequently missed, causing employees to be over-taxed. When employees file returns and claim refunds, FBR audits the employer's Rule 44 statements.
3. Incorrectly treating bonuses as separate events. Eid bonus, performance bonus, and leave encashment all form part of total annual salary and must be added to projected income in the month they are paid. Several employers withhold flat percentages on bonuses, which often leaves the employee over-withheld or under-withheld by year-end.
How Peoplifi automates Section 149 compliance
Peoplifi's Pakistan payroll engine applies the Section 149 average-rate formula every time you run payroll. When you change a salary, add an allowance, or process a bonus, Peoplifi re-calculates the full-year tax liability and adjusts monthly withholding automatically. Medical and provident fund exemptions are built in. At month-end, Peoplifi generates the Rule 44 statement and the annual Section 149 statement in the exact format FBR accepts for IRIS upload, plus individual Form 149 certificates ready to email to employees.
Try Peoplifi free for 14 days — no credit card required. Set up your Pakistan payroll in under 30 minutes and have FBR-compliant payslips generating automatically. Start your free trial or explore the FBR Section 149 tax calculator to estimate any employee's monthly withholding in seconds.
Frequently asked questions
Is Section 149 tax refundable? Yes. If an employee's actual annual tax (when they file their personal return) is less than the amount withheld, they can claim a refund from FBR directly. This is why issuing an accurate Form 149 certificate matters.
What if an employee refuses to share their NTN? The law treats non-filer salaried employees the same as filers — tax is deducted at the same slab rates. Having an NTN is encouraged but does not change Section 149 withholding.
Can an employee opt for higher deduction? Yes. An employee may request the employer to deduct a higher amount under Section 149(3) if they expect income from other sources and want to reduce their year-end tax liability.
Are overseas Pakistanis on local payroll subject to Section 149? Yes, if the salary is paid by a Pakistani employer. Residency status affects foreign-source income, but Pakistan-source employment income is always subject to Section 149 withholding.
Ready to automate your HR?
Peoplifi handles FBR Section 149, EOBI, biometric attendance, and payroll automatically — so your team can focus on people, not spreadsheets.
Start your free 7-day trial →