Exceeding Rs10m annually: Flat 5pc tax on pension income proposed

ISLAMABAD: The federal government has introduced a new tax measure targeting high-value pension incomes, as part of its Finance Bill 2025-26 proposals.

Under the new framework, pension income exceeding Rs10 million annually, received by individuals below the age of 70, will be subject to a flat tax rate of five percent.

The proposal clearly delineates that pension income up to Rs10 million in a tax year will remain entirely tax-free, preserving relief for the vast majority of pensioners.

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

However, individuals below 70 years of age with pension earnings above this threshold will now contribute to the national exchequer through a modest five per cent tax on the pension income.

Tax lawyer Waheed Shahzad Butt, commenting on the proposal, said, “This is a prudent step towards a more equitable tax system. High-earning individuals benefiting from generous pension schemes should participate in tax contributions, and this move promotes fairness and fiscal responsibility.”

The measure is expected to enhance revenue collection without burdening the lower and middle-income retired population, striking a balance between equity and economic prudence.

This decision marks a step forward in broadening the tax base and ensuring that wealthier segments of society share a fairer portion of the national tax burden. The Federal Budget 2025 document stated, “Pension income received by an individual below the age of 70 years and over and above of Rs10,000,000 has been charged to tax at the flat rate of 5%. There will be 0% tax rate on pension income not exceeding Rs10,000,000.”

Copyright Business Recorder, 2025