Understanding Salary Tax Deductions
Most salaried individuals in Pakistan overpay their tax simply because they don't know which deductions they're entitled to claim. Here's a breakdown of the ones that matter most.
Zakat Contributions
Zakat deducted at source under the Zakat and Ushr Ordinance is excluded from your taxable income entirely — no separate claim needed if your bank already deducts it.
Provident Fund
Contributions to a recognized provident fund are exempt up to the annually notified limit. Anything above that limit is added back to taxable income.
Key Deductions to Track
- Zakat paid via bank deduction or certificate
- Recognized provident fund contributions
- Approved pension fund contributions under the Voluntary Pension System
- Medical allowance (up to 10% of basic salary, if not separately reimbursed)
Common Mistake
Many salaried employees assume their employer automatically applies every eligible deduction during monthly withholding. In practice, employers apply the standard ones — Zakat and provident fund — but pension fund contributions and some allowances need to be claimed explicitly at return-filing time.
A quick way to check: compare your total annual tax withheld (from your salary certificate) against what our tax calculator estimates for your income bracket. A large gap often means an unclaimed deduction.
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