Budget 2024-25: Comprehensive guide to income tax rates applicable to employees

In a significant fiscal policy update, the government has implemented revised income tax brackets for the upcoming fiscal year 2024-25, affecting individuals with salaried incomes. Here are the key changes:

  • The tax exemption threshold remains unchanged at Rs600,000 annually.
  • Individuals earning between Rs600,000 and Rs1,200,000 per year will now face a 5% tax rate, up from the previous 2.5%.
  • Those with annual incomes ranging from Rs1,200,000 to Rs2,200,000 (equivalent to Rs100,000 to Rs183,344 per month) will be subject to a 15% tax rate and an additional fixed tax of Rs30,000.
  • For example, someone earning Rs150,000 monthly (Rs1,800,000 annually) will pay Rs120,000 in taxes annually, resulting in Rs140,000 after deductions.
  • Individuals earning between Rs2,200,000 and Rs3,200,000 annually (up to Rs267,667 per month) will incur a 25% tax rate and an additional Rs180,000.
  • A person earning Rs250,000 monthly (Rs3 million yearly) will pay Rs380,000 annually, approximately Rs31,667 monthly.
  • Those earning between Rs3,200,000 and Rs4,100,000 annually will face a fixed tax of Rs430,000 plus a 30% tax on income exceeding Rs3,200,000.
  • Individuals earning above Rs4,100,000 yearly will be subject to a fixed tax of Rs700,000 plus a 35% tax on income exceeding Rs4,100,000.

The government has maintained the existing six tax brackets but has adjusted the rates, significantly altering the tax landscape for salaried individuals. Previously, the highest tax rate of 35% applied to monthly incomes exceeding Rs600,000 (Rs7,200,000 annually), while lower brackets were taxed at 27.5%.

In the last fiscal year, salaried individuals in Pakistan contributed a substantial Rs158 billion in taxes, ranking as the fourth-largest income tax contributors nationwide. This amount reportedly surpassed taxes paid by highly subsidized exporters by 243%.

This new tax structure aims to enhance revenue collection and ensure a more equitable distribution of tax burdens among income earners.

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