Pension, tax relief thresholds: FBR working on two major budget proposals

ISLAMABAD: The Federal Board of Revenue (FBR) is working on two major budget proposals including taxation of pension above certain high threshold and increase in existing income tax exemption threshold from next fiscal year (2025-26).

Sources told Business Recorder that both the proposals would be submitted before the prime minister for approval. However, working on these proposals has been started in the FBR.

The first proposal is to impose some nominal tax on pensions where very high amount is paid under the head of “pensions”. Initially, this may cover Grade-22 retired officials and others in same category.

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For instance, if a retired person is getting pension of or above Rs0.4 million per month or Rs4.8 million per annum, it may be subjected to some nominal tax on pension. A tax rate of 2.5 percent can be considered for taxation of pension on a monthly basis.

There are cases people are enjoying luxurious lifestyle along with drawing high amount of monthly pension. The proposal has been drafted only for persons receiving very high pension amount, but not to be applicable for pensioners receiving lower amounts of pensions.

A former FBR Member Tax Policy told this scribe that it would be a political decision whether the government is ready to taxpensions above certain high threshold. This may cover retired judiciary, bureaucrats and senior retired armed forces officials, he added. The second proposal is to raise the income tax exemption threshold of Rs0.6 million under the Income Tax Ordinance, 2001. This is a relief measure for the general public to considerably enhance exemption threshold of income tax, the sources added.

Copyright Business Recorder, 2025