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Commercial importers bringing in Part-III items are hit with a 12% tax rate if they are Non-Filers, compared to only 6% for Active Filers. • Registering a 1000cc motor vehicle costs Filers just 1% in tax, while Non-Filers are penalized with a 3% tax. • Active Filers importing CKD kits for Electric Vehicles pay a minimal 1% tax, whereas Non-Filers pay double at 2%. • The sale of petroleum products is taxed at 12% for Filers and exactly double that at 24% for Non-Filers. • Commercial importers of Part-II goods face a 3.5% withholding tax if they are Filers, but the rate doubles to 7% for Non-Filers. • Salaries under Rs. 600,000 are completely tax-free, maintaining a 0% rate regardless of your taxpayer status. • Pensions under 10 million rupees remain 100% tax-exempt for everyone, no matter what your filing status is. • Winning a prize bond or crossword puzzle means you lose 15% to taxes as an Active Filer, but a massive 30% if you are a Non-Filer. • Buying a high-end 2501cc to 3000cc vehicle leaves Filers with a 9% tax bill, but absolutely punishes Non-Filers with a massive 27% tax rate. • Payments to electronic and print media for advertising services are taxed at just 1.5% for Active Taxpayers, compared to 3% for Non-Filers. • If you receive dividends from Independent Power Purchasers (IPPs), Filers pay a 7.5% tax while Non-Filers surrender 15%. • Providing IT and IT-enabled services costs Active Taxpayers just 4% in withholding tax, while Non-Filers must pay 8%. • Buyers of 1301cc to 1600cc cars pay a 2% advance tax if they are Filers, but Non-Filers pay exactly triple at 6%. • Dividends from Real Estate Investment Trusts (REITs) and general companies cost Active Filers 15% in tax, but Non-Filers lose a massive 30%. • Purchasing a 1601cc to 1800cc vehicle will cost Non-Filers a 9% tax, which is three times the 3% rate given to Active Filers. • Cash withdrawals by a person whose name does not appear on the Active Taxpayers’ List are hit with an automatic 0.8% advance tax. • Registering a 2001cc to 2500cc luxury vehicle incurs a 7% tax for Active Filers, but a staggering 21% tax for Non-Filers. • Companies generating rental income from immovable property pay a 15% tax if they are Active Filers, but face a 30% rate as Non-Filers. • Importing pharmaceutical products carries an 8% tax for Non-Filers, which is exactly double the 4% rate applied to Active Taxpayers. • Payments made to non-resident sportspersons incur a 15% tax if they are on the ATL, and a massive 30% if they are non-ATL. • Importing basic goods from Part-I of the Twelfth Schedule costs Active Taxpayers just 1% in tax, while Non-Filers have to pay 2%. • The withholding tax on banking and financial institution profits is set at 20% for those on the Active Taxpayers’ List, but jumps to 40% for those off the list. • Capital gains arising on the disposal of certain debt securities are taxed at 15% for Filers, but double to 30% for Non-Filers. • Profits on debt from mutual funds deriving 50% or more income from debt carry a huge 50% tax for Non-Filers, compared to 25% for Filers. • Selling rice, cotton seed, or edible oils comes with a low 1.5% tax for Filers, but a 3% tax for Non-Filers. • Winning a raffle, lottery, or sales promotion prize costs Non-Filers a whopping 40% in tax, compared to 20% for Filers. • Commercial importers bringing in Part-III items are hit with a 12% tax rate if they are Non-Filers, compared to only 6% for Active Filers. • Registering a 1000cc motor vehicle costs Filers just 1% in tax, while Non-Filers are penalized with a 3% tax. • Active Filers importing CKD kits for Electric Vehicles pay a minimal 1% tax, whereas Non-Filers pay double at 2%. • The sale of petroleum products is taxed at 12% for Filers and exactly double that at 24% for Non-Filers. • Commercial importers of Part-II goods face a 3.5% withholding tax if they are Filers, but the rate doubles to 7% for Non-Filers. • Salaries under Rs. 600,000 are completely tax-free, maintaining a 0% rate regardless of your taxpayer status. • Pensions under 10 million rupees remain 100% tax-exempt for everyone, no matter what your filing status is. • Winning a prize bond or crossword puzzle means you lose 15% to taxes as an Active Filer, but a massive 30% if you are a Non-Filer. • Buying a high-end 2501cc to 3000cc vehicle leaves Filers with a 9% tax bill, but absolutely punishes Non-Filers with a massive 27% tax rate. • Payments to electronic and print media for advertising services are taxed at just 1.5% for Active Taxpayers, compared to 3% for Non-Filers. • If you receive dividends from Independent Power Purchasers (IPPs), Filers pay a 7.5% tax while Non-Filers surrender 15%. • Providing IT and IT-enabled services costs Active Taxpayers just 4% in withholding tax, while Non-Filers must pay 8%. • Buyers of 1301cc to 1600cc cars pay a 2% advance tax if they are Filers, but Non-Filers pay exactly triple at 6%. • Dividends from Real Estate Investment Trusts (REITs) and general companies cost Active Filers 15% in tax, but Non-Filers lose a massive 30%. • Purchasing a 1601cc to 1800cc vehicle will cost Non-Filers a 9% tax, which is three times the 3% rate given to Active Filers. • Cash withdrawals by a person whose name does not appear on the Active Taxpayers’ List are hit with an automatic 0.8% advance tax. • Registering a 2001cc to 2500cc luxury vehicle incurs a 7% tax for Active Filers, but a staggering 21% tax for Non-Filers. • Companies generating rental income from immovable property pay a 15% tax if they are Active Filers, but face a 30% rate as Non-Filers. • Importing pharmaceutical products carries an 8% tax for Non-Filers, which is exactly double the 4% rate applied to Active Taxpayers. • Payments made to non-resident sportspersons incur a 15% tax if they are on the ATL, and a massive 30% if they are non-ATL. • Importing basic goods from Part-I of the Twelfth Schedule costs Active Taxpayers just 1% in tax, while Non-Filers have to pay 2%. • The withholding tax on banking and financial institution profits is set at 20% for those on the Active Taxpayers’ List, but jumps to 40% for those off the list. • Capital gains arising on the disposal of certain debt securities are taxed at 15% for Filers, but double to 30% for Non-Filers. • Profits on debt from mutual funds deriving 50% or more income from debt carry a huge 50% tax for Non-Filers, compared to 25% for Filers. • Selling rice, cotton seed, or edible oils comes with a low 1.5% tax for Filers, but a 3% tax for Non-Filers. • Winning a raffle, lottery, or sales promotion prize costs Non-Filers a whopping 40% in tax, compared to 20% for Filers. •

How to Calculate Tax on Bank Profits (Saving Accounts) in Pakistan?

Understanding how Pakistan taxes Profit on debt or Bank Profits is crucial for both individuals and businesses receiving income from investments and deposits. This article explores the relevant sections of the Income Tax Ordinance (ITO) 2001, explaining who is liable for tax, tax calculation methods, and exemptions.

Understanding how FBR taxes Profit on debt or Bank Profits is crucial for both individuals and businesses receiving income from investments and deposits. This article explores the relevant sections of the Income Tax Ordinance (ITO) 2001, explaining who is liable for tax, tax calculation methods, and exemptions.

What is Profit on Debt?

The ITO defines “profit on debt” as income earned on various financial instruments, including:

Interest on bank accounts and deposits (National Savings Scheme and Post Office Savings Accounts)
Profit on government securities (National Savings Scheme)
Returns on investment in sukuks (Islamic bonds)
Interest on corporate bonds and debentures

Explanation: Income generated from saving accounts or deposits with any bank or financial institute is known as profit on debt.

Who Pays Tax on Profit on Debt?

The tax burden for profit on debt primarily falls on the payer of the income, not the recipient. This means banks, financial institutions, and government entities typically deduct tax at the source when making interest or profit payments.

However, withholding tax is not collected at source on the profit earned on Behbood Savings Certificate. This means that the 5% applicable tax rates on Behbood Savings (as per Second Schedule, Part III) will be paid directly by the taxpayer at the time of filing tax-returns.

Applying for Reduced Rate on Arrears:

In cases where profit on debt is derived from investments in National Savings Deposit Certificates, including Defence Savings Certificates, and such profit is paid to a person in arrears or includes amounts attributable to earlier tax years (where tax rate was lower), the recipient may face an unintended increase in their tax liability. This can occur when the delayed payment causes the person to fall into a higher tax bracket than would have applied had the profit been received in the tax year to which it actually relates.

To address this, the law provides relief by allowing the person to submit a written notice to the Commissioner, electing for the profit to be taxed at the rate that would have been applicable in the original tax year. This provision ensures that taxpayers are not unfairly penalized due to timing issues in the receipt of profit and allows for taxation to reflect the true period in which the income was earned.

Tax Withholding Rates & Tax Treatment:

S. No.	Provision / Category	Finance Act, 2026 Amendment	Key Details
1	Section 151 – Withholding Tax on Profit on Debt	Rates	The withholding tax rate under Division IIIAA of Part III of the First Schedule is 20%.
2	New Section 151B*	Tax on Life Insurance/Takaful Payouts	Every life insurance company and takaful operator is required to deduct withholding tax on specified payouts made to individuals.
3	Section 151B – Taxable Amount	Basis of Tax	Tax is calculated on the gross payout amount minus the total premiums/contributions paid by the policyholder.
4	Section 151B – Payout Within One Year	15% Tax Rate	A withholding tax of 15% applies where the payout is made within one year of the policy issuance.
5	Section 151B – Payout Between One and Four Years	10% Tax Rate	A withholding tax of 10% applies where the payout is made after one year but before four years from the date of policy issuance.
6	Section 151B – Exemptions	No Tax Deduction	No withholding tax is deducted if the payout is due to death, disability, or is made after completion of four years from the policy issuance date.
7	Section 151B – Final Tax	Final Tax Regime	Tax deducted under Section 151B is treated as the final tax on the income.
8	FCVA / FCBVA / NRVA / NRBVA Account Holders	Return Filing & Registration Relief	Individuals whose only Pakistan-source taxable income is profit on debt from eligible foreign currency/value accounts or Government of Pakistan securities are exempt from filing a return under Section 114 and registration under Section 181.
9	Administrative Amendment	Section 151A Included	Clause (47B) of Part IV of the Second Schedule has been amended to include Section 151A alongside Section 151 for administrative purposes.
10	Foreign Currency Value Accounts	Capital Gains Withholding	Banking companies are required to deduct tax at the prescribed rate on capital gains arising from the disposal of debt instruments and Government certificates invested through FCVA, FCBVA, NRVA, and NRBVA accounts.

*Exclusion from Withholding Tax: No withholding tax under Section 151B is applicable where the payout is made due to the death or disability of the policyholder, or where the payout is received after the completion of four years from the date of issuance of the life insurance policy or family takaful certificate. For taxable payouts covered under this section, the tax deducted is treated as the final tax on the income arising from the payout or benefit.

The specific bank profit tax rate applied depends on the recipient’s category. Following are the tax rates on saving accounts applicable for financial year 2026-27, from July 1, 2026 till June 30, 2027:

Individuals, AOPs and Companies: All face withholding tax rates as 20% for active and late filers, while 40% for Non Filers on profit on debt (below 5 million) in Pakistan.
Profit on Debt Exceeding PKR 5 Million: where profit on debt exceeds 5 Million for a Tax Year it is taxed as normal income i.e Normal business slab rates will be applicable.
Non Residents: Tax on profit on debt is not applicable on non-residents. The exemption certificate shall be provided to the withholding agent.
Difference B/w Individual and Companies: The tax deducted at source is final/minimum liability for individual /AOPs however Companies can adjust the tax deducted against their final liability.
Zakat Deduction: The payer can deduct the amount of Zakat (2.5%) paid by the recipient from the gross profit before applying withholding tax.

Withholding Tax Rate for Defense Saving Certificates:

This tax is deducted at the source, meaning it is taken out of the profit before it is paid to the certificate holder. The rate varies based on the tax filer status.

Filers: Individuals who file their income tax returns are subject to a 15% withholding tax on their DSC profits.
Non-filers : Individuals who do not file their income tax returns are subject to a higher withholding tax of 35% on their DSC profits.

In Nutshell

Profit on debt taxation in Pakistan can be complex, with multiple withholding rates and exemptions. It’s important to consult with a tax professional to understand your specific situation, including your tax residency status, type of income, and potential exemptions. They can help you determine your tax liabilities, ensure compliance with regulations, and maximize any available tax benefits.

Mah Noor

An aspiring Chartered Accountant with a growing footprint in Pakistan’s tax education and digital finance content landscape. Currently, I work as the Editor-in-Chief at TaxationPk, where I lead content strategy, quality control, and editorial planning for tax-related blogs, news articles, and social media outreach.

Articles: 36

26 Comments

Shas

September 24, 2025 / 3:48 pm Reply

Hello
If my total profit on debt for year 2024-25 is 5.7M excluding withholding tax. So for the final withholding tax do i need to do calculations on Gross 5.7M or should i go ahead with the amount comes after tax withholding tax deduction, in this case my amount would be under 5M and it doesn’t kie under advance tax
Munir Hussain

July 10, 2025 / 2:29 pm Reply

It ii mentioned above that in Finance Act 2025, The cap of 5 million on profit on debt has been removed and now all profit on debt will be taxed at 20% .and withholding tax is also 20%.I found this change in Finance bill (proposed) and also in Silent features of Budget 2025-26 at page #8 (last para viii) but I could not find this Cap removal clause in passed Finance Act 2025.Can You please confirm that this cap has been removed in Finance Act and where it is mentioned in Passed Finance act 2025.I will really appreciate your clarification. Best Regards
shahin

May 27, 2025 / 10:08 am Reply

1. profit on deposit is included in total income for taxation or not?
2. withholding tax on profit of deposit is refundable or not?
- Binte Zafar
  
  May 27, 2025 / 3:27 pm Reply
  
  1. Seperate Block upto 5million
  2. Non refundable
Xahid

May 19, 2025 / 5:31 pm Reply

Clause 78 and 79 of the Second Schedule: I have RDA account and bank withold 10% Tax on Profit. Per your article; the exemptions from tax on profits earned from bank deposits in Pakistan for non-resident Pakistanis. Do you mena that we can apply for exemption certificate to avoid 10% tax incidence. Please advise accordingly.
Sajid Hameed

April 24, 2025 / 12:00 am Reply

I am a filer. If, I receive 5.3 million as a profit from my saving account in a bank, will I be paying 15%withholding tax on 5 million and 40% tax on 3 lacs or will l be paying 40% withholding tax on 5.3 million profit?
- Hayat Akbar
  
  April 24, 2025 / 12:09 am Reply
  
  Your bank will deduct taxes at 15% no matter how much your profit is even above 5m. However, at the time of filing your tax-returns you will need to pay the remaining 25-35% at the time of filing your tax returns. Individual rates apply to your income then which use to be the sum of all of your income in an year and taxes are applied accordingly. Individual rates are mentioned in the article for reference.
Farooq

March 17, 2025 / 5:13 pm Reply

A person invested in defence saving certificates in 2013 for a fixed term of 10 years during which he was not entitled to withdraw annual profit accrued ( although he could withdraw the principal amount along with profit accrued till date by paying a certain amount of penalty) nor did the bank deduct tax on annual profit. Entire compounded profit was received by the person in 2023. How the profit will be taxed ?? Whether the entire amount received in 2023 shall be subjected to normal tax regime or rate of relevant tax years during which profit accrued ( although neither paid to the depositor nor any tax was deducted in those years).
- Binte Zafar
  
  March 17, 2025 / 8:21 pm Reply
  
  apply to the Commissioner for the reduced rate of tax (as per past years)
Mubasher

March 6, 2025 / 1:18 am Reply

Great but one point still need clarification that Under 5 million tax on profit will be the 15% but what will be the rate of tax for profit on debt on amount exceeding Rs 5 million. Please mention the clear rate of tax.
- Hayat Akbar
  
  March 6, 2025 / 1:32 am Reply
  
  They’re taxed for upto 45% of the income on tax-rates for individuals and aops normally known as business tax slab in Pakistan. You can search for business tax-rates or visit the link given in the article.
  - Ali
    
    March 22, 2025 / 7:08 pm Reply
    
    Sir I deposit 6.5 million in my saving personal account what amount of total tax deductible?
    - Binte Zafar
      
      March 22, 2025 / 7:22 pm Reply
      
      Bank will charges tax depending on filer or non filer status.
  - SEEMA SAJID
    
    September 6, 2025 / 1:11 pm Reply
    
    Sir I Get Home remmittence In my account every month from abroad.On that basis I Get saved some amount in My other account on which i get profits(I am not a filer because I am not An employer or do work just a house lady) on profits I loose heavy percentage on WHT as a non filer.what should I do to minimize that amount if I get Filer it should be half percentage of WHT or My savings are exempt from tax?because I Am not an employer myself and I saved some money in an other account but transfer from the same account where i get home remmittence.
    - Hayat Akbar
      
      September 6, 2025 / 4:30 pm Reply
      
      You should become active filer to reduce your WHT from 40% to 20%.
NASIR MAHMOOD

February 5, 2025 / 11:41 am Reply

what will be tax rate on profit earned from bank deposit by corporate entity
- Binte Zafar
  
  February 5, 2025 / 5:15 pm Reply
  
  15%
Bilal Ahmed Qureshi

October 3, 2024 / 6:22 pm Reply

I’m retired since last 7 years at the age of 60 years the end benefits were invested in Behbood Rs. 5,000,000 and remaining in SSC and National Savings deducted 15 percent WHT on SSC profit but they don’t deduct any WHT on Behbood profit but total profit in a year is Rs 800,000 and my expenses are more than the profit on Behbood. Please advise if the entire amount of profit is exempted from tax or should I have to pay tax amount on certain trash hold of profit please advise
Masood

September 18, 2024 / 12:43 am Reply

In case of Profit on Debt Exceeding PKR 5 Million, can we take profit upto 5 million in final tax category i.e. @ 15% and the excess amount from 5 million under normal tax?
- Hayat Akbar
  
  September 18, 2024 / 1:51 am Reply
  
  No, that will be taxed at Individual (Business) tax rates as applicable.
  - imran
    
    October 1, 2024 / 9:46 pm Reply
    
    sir ,what will be the rate in that case
    - Hayat Akbar
      
      March 6, 2025 / 1:56 am Reply
      
      40% upto 5.6 million and then 45% of the annual income from bank profit.
      - Qazi
        
        June 20, 2025 / 3:39 pm
        
        5 million to 5.6 million? Or 0 to 5.6 million?
      - Hayat Akbar
        
        June 20, 2025 / 6:12 pm
        
        Taxes will be applied on whole amount. Upto 600K is exempt and then taxed at different slabs. For details you can read more on Individual Tax Rates
NAVEED SAFDAR

June 26, 2024 / 12:18 pm Reply

A very concise, well explained and informative article. However, following points may be elaborated, please: –
“Profit on Debt Exceeding PKR 5 Million: where profit on debt exceeds 5 Million for a Tax Year it is”
Non Residents: Tax on profit on debt is not applicable on non-residents.
- Binte Zafar
  
  June 26, 2024 / 3:03 pm Reply
  
  Profit on Debt Exceeding PKR 5 Million: where profit on debt exceeds 5 Million for a Tax Year it is taxed as normal income.
  
  Tax on profit on debt is not applicable on non-residents.
  A separate article is available on the same topic which explains the pre-requisites in detail Titled “Not All Profits Get Taxed in Pakistan: A Guide for Foreign Investors and Returning Pakistanis”.