A. Exemptions under Second Schedule – Part I (Exemption from Total Income)
✔️ Pension & Retirement
- Clause 9 – Pension to families/dependents of armed forces & government employees (restored in FA 2025)
- Clause 13 – Commutation of pension (fully exempt)
✔️ Salary / Employee Benefits
- Clause 53A – Certain perquisites exempt:
- Free/subsidized food
- Education for employees’ children
- Medical facilities
- Clause 139(a) – Employer-provided medical treatment/hospitalization
- Clause 139(b) – Medical allowance up to 10% of basic salary
✔️ Non-Profit & Institutions
- Clause 66(1) (Table 1 & 2) – Income of trusts, foundations, NGOs (subject to Section 100C)
- Finance Act 2025 tightened conditions for exemptions under Section 100C
✔️ Investment Funds / Financial Instruments
- Clause 57(2) – Mutual funds / REITs exempt if ≥90% income distributed
- Clause 99 – Collective investment schemes (distribution condition)
✔️ Foreign & Non-Resident Income
- Clause 75 – Profit on debt/capital gains of foreign governments
- Clause 78 – Foreign currency accounts (non-residents)
- Clause 79 – Rupee accounts funded via foreign remittances
✔️ Sector-Specific / Industrial Exemptions
- Clause 103D – Venture capital gains/dividends (STZ enterprises)
- Clause 126 – Public sector universities
- Clause 126AA – Gwadar Free Zone (23-year exemption)
- Clause 126D – Export Processing Zone Gwadar
- Clause 126E – Special Economic Zones (10 years)
- Clause 132C – Bagasse/biomass power projects
✔️ Other Notable Exemptions
- Clause 105B – Dividend from agricultural companies
- Clause 23A / 23C – Retained in FA 2025 (specific sector exemptions)
�� B. Exemptions under Specific Sections (Outside Second Schedule)
✔️ Agricultural Income
- Section 41 – Fully exempt from federal income tax
✔️ Support Payments
- Section 48 – Spousal support payments exempt
✔️ Minimum Tax Relief
- Section 113(1) – No minimum tax if turnover below threshold
�� C. Withholding Tax Exemptions / Special Cases (2025 Updates)
- Section 148 (WHT on imports) – Exemption on specific medicines (Finance Act 2025)
- Various exemptions updated through SROs issued by Federal Board of Revenue
�� D. Expired / Modified Exemptions (Important for 2025–26)
- IT exports exemption (Clause 133) – expired on 30 June 2025
- Some clauses (e.g., Clause 8) removed or modified under Finance Act 2025
�� E. Reduced Tax / Partial Relief (Second Schedule Part II & III)
(Not full exemptions but relevant reliefs)
- Clause 6 (Part III) – Reduced tax on Behbood/Pensioner accounts
- Clause 2 (Part III) – 25% tax reduction for teachers/researchers
- Clause 19 (Part III) – 25% reduction for women entrepreneurs
Tax exemptions are summarized below for reference:
�� SECOND SCHEDULE – PART I
(Exemptions from Total Income – Key Clauses 2025–26)
| Clause | Description | Status (2025–26) | Key Condition |
| 8 | Pension (general) | ❌ Omitted | Removed under FA 2025 |
| 9 | Pension to families of deceased govt/armed forces employees | ✅ Restored | Only for dependents (partial restoration) |
| 12 | Certain pensions/benefits | ✅ Restored | Subject to conditions |
| 13 | Commutation of pension | ✅ Active | Fully exempt |
| 40 | Specific employee allowances (e.g. media travel) | ✅ Active | Conditional |
| 53A | Employee perquisites (food, education, medical) | ✅ Active | No marginal cost to employer |
| 57(2) | Mutual funds / REIT income | ✅ Active | ≥90% distribution |
| 66(1) | NPOs, trusts, foundations | ✅ Active (restricted) | Must comply with Section 100C |
| 75 | Foreign govt income (profit/capital gains) | ✅ Active | Govt approval required |
| 78 | Foreign currency accounts (non-residents) | ✅ Active | Must be FCY account |
| 79 | Rupee accounts from foreign remittance | ✅ Active | Funds must be remitted from abroad |
| 99 | Collective investment schemes | ✅ Active | ≥90% income distribution |
| 103D | Venture capital / STZ investments | ✅ Active | Limited time exemption |
| 105B | Dividend from agricultural companies | ✅ Active | Derived from agri income |
| 126 | Public sector universities | ✅ Active | Non-profit purpose |
| 126AA | Gwadar Free Zone businesses | ✅ Active | 23-year exemption |
| 126D | Export Processing Zone Gwadar | ✅ Active | 10-year exemption |
| 126E | Special Economic Zones (SEZs) | ✅ Active | 10-year tax holiday |
| 132C | Bagasse/biomass energy projects | ✅ Active | Power generation projects |
| 139(a) | Employer-provided medical treatment | ✅ Active | As per employment terms |
| 139(b) | Medical allowance (≤10% salary) | ✅ Active | Cap applies |
�� IMPORTANT RELATED SECTIONS (Outside Schedule)
| Section | Description |
| Section 41 | Agricultural income exempt (federal level) |
| Section 48 | Spousal support payments exempt |
| Section 100C | Governs NPO exemption regime |
| Section 113 | Minimum tax exemption (threshold cases) |
✔ Agricultural income exemption confirmed under Section 41
Key Tax Credits in Pakistan
�� 1. Investment in Shares / Mutual Funds
(Section 62)
- Credit on investment in:
- Listed company shares
- Mutual funds
- Subject to limits (% of taxable income and tax)
�� 2. Life Insurance Premium
(Section 62)
- Credit on premium paid to insurance companies
- Encourages financial protection and savings
�� 3. Contribution to Pension Fund
(Section 63)
- Voluntary Pension Schemes (VPS)
- Higher benefit for younger individuals
�� 4. Tuition Fee Credit
(Section 60C)
- For:
- Students or parents paying tuition
- Subject to income threshold
�� 5. Profit on Debt (Home Loan)
(Section 64A)
- Credit on markup paid on housing loan
- Promotes home ownership
�� 6. Zakat Credit
(Section 61)
- Zakat paid through recognized channels
- Fully adjustable against tax
�� 7. Foreign Tax Credit
(Section 103)
- Relief for tax paid outside Pakistan
- Avoids double taxation
�� 8. Business & Industrial Credits
(Sections 64B, 65B, 65D, etc.)
Available to companies and AOPs for:
- Investment in plant & machinery
- New industrial undertakings
- Employment generation
�� How Tax Credit Works (Simple)
�� Example:
- Tax payable = Rs. 100,000
- Tax credit = Rs. 20,000
✅ Final tax = Rs. 80,000
�� Key Conditions
- Must be documented and declared
- Payments should be through banking channels
- Subject to limits and formulas in law
- Claimed through return filed with Federal Board of Revenue
�� Quick Takeaway
- Tax credits = direct tax saving
- Most useful for:
- Salaried individuals (insurance, tuition, pension)
- Businesses (investment credits)
Tax Credits vs Tax Exemptions (Simple Comparison)
| Basis | Tax Credit | Tax Exemption |
| Meaning | Reduces tax payable | Reduces taxable income |
| Impact | Direct saving (strong effect) | Indirect saving (lower effect) |
| Applied at | After tax is calculated | Before tax is calculated |
| Benefit level | Higher | Lower |
| Who benefits most | Salaried & investors | Specific income types |
| Examples | Insurance, pension, tuition | Agriculture, remittance |
| Claim process | Claimed in return | Income already excluded |
Withholding Taxes in Pakistan (Summary Table)
| Sr# | Section | Nature of Payment | Who Deducts | Who is Paid | Tax Type | Typical Treatment |
| 1 | 149 | Salary | Employer | Employee | Income tax | Final (for salaried individuals) |
| 2 | 150 | Dividend | Company | Shareholder | Income tax | Final tax |
| 3 | 151 | Profit on Debt | Bank / Financial institution | Account holder | Income tax | Final / adjustable |
| 4 | 153 | Contracts / Services / Supplies | Companies, Govt, AOPs | Vendors / Contractors | Income tax | Adjustable / minimum tax |
| 5 | 154 | Export Proceeds | Banks / Exporters | Exporters | Income tax | Final tax |
| 6 | 155 | Rent | Tenant / Payer | Landlord | Income tax | Adjustable / final (varies) |
| 7 | 148 | Imports | Importers / Customs | Government | Income tax | Adjustable / minimum tax |
| 8 | 236C | Sale of Immovable Property | Buyer | Seller | Advance tax | Adjustable |
| 9 | 236K | Purchase of Immovable Property | Buyer | Seller | Advance tax | Adjustable |
| 10 | 231A | Cash Withdrawal | Banks | Account holder | Advance tax | Adjustable / higher for non-filers |
| 11 | 231B | Motor Vehicle Registration | Excise / Registration Authority | Vehicle owner | Advance tax | Adjustable |
| 12 | 234 | Motor Vehicle Tax / Token Tax | Govt / Excise | Vehicle owner | Advance tax | Adjustable |
| 13 | 235 | Electricity Bills | Power Companies | Consumer | Advance tax | Minimum tax / adjustable |
| 14 | 236 | Telephone / Internet Bills | Telecom Companies | Subscriber | Advance tax | Adjustable |
| 15 | 233 | Commission / Brokerage | Payer | Agent / Broker | Income tax | Final / adjustable |
| 16 | 156 | Prize Bonds / Lottery | Banks / Authorities | Winner | Income tax | Final tax |