When Pension Income becomes Taxable?

This article clarifies the tax rules for pensions in Pakistan.

Taxable Situations:

• Double Dipping: Your pension is taxable if you receive a pension and continue working (including contractual work) for the same company or a subsidiary.
• Multiple Pensions: If you receive pensions from two or more unrelated employers, the higher pension is exempt, and the rest is taxable.

Exemptions:

• Age Exemption: Individuals above 60 years old are exempt from the double-dipping and multiple pension tax rules.
• Circular No. 28 of 1991: This circular clarifies that pensions are not taxable unless they fall under the double-dipping or multiple pension scenarios.

Example:

• Mr. Ali receives a pension of Rs. 2.5 million from Company A and starts consulting for them on a contract basis. In this case, Mr. Ali’s pension would be taxable because he is double-dipping.
• Ms. Fatima receives a pension of Rs. 1.8 million from Company B and Rs. 2.2 million from Company C. Since the combined amount is less than Rs. 3 million, Ms. Fatima’s pensions are not taxable.

Conclusion:

It’s important to stay informed about tax regulations. the double-dipping and multiple pension scenarios are the only situations where pensions are taxable in Pakistan, with exemptions for senior citizens.