Major income tax relief for salaried class in Budget FY26

The government of Pakistan has announced significant tax cuts for salaried individuals in the Federal Budget 2025-26. Finance Minister Muhammad Aurangzeb presented the budget in the National Assembly on Tuesday, highlighting the government’s commitment to reducing the tax burden on middle and high-income earners.

Lower Tax Rates for Salaried Workers

The new tax slabs bring major relief to salaried individuals. The biggest benefit goes to those earning between Rs600,000 and Rs1.2 million annually, as their tax rate has been slashed from 5% to just 1%. This means someone earning Rs1.2 million per year will now pay only Rs6,000 in tax, compared to Rs30,000 previously.

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For those earning up to Rs2.2 million, the tax rate has been reduced from 15% to 11%, providing additional relief. Similarly, individuals earning between Rs2.2 million and Rs3.2 million will see their tax rate drop from 25% to 23%.

Government’s Plan to Retain Skilled Professionals

The budget also includes measures to slow down brain drain. A 1% reduction in surcharge has been proposed for individuals earning over Rs1 million annually. This aims to retain highly skilled professionals who might otherwise leave Pakistan due to high tax rates.

Economic Growth and Budget Allocation

Pakistan has set a 4.2% economic growth target for 2025-26, up from 2.7% in the current fiscal year. The government has reduced overall spending by 7%, bringing the total budget to Rs17.57 trillion ($62 billion). However, defense spending has been increased by 20%, with Rs2.55 trillion ($9 billion) allocated to the sector.

Impact on Salaried Individuals

The revised tax slabs will help salaried workers take home more money, making it easier to manage expenses amid inflation. The government hopes these measures will boost consumer spending and strengthen the economy.