Tax Saving Tips for Salaried Pakistanis

Last reviewed: October 8, 2026 — figures checked against FY 2026-27 slabs.

1. Medical allowance (the most common)

Up to 10% of your basic salary is completely exempt from income tax if paid as a medical allowance. Check your salary structure with HR — many employers already split pay this way, but not all employees realize the exemption exists or is being applied correctly. Our calculator lets you enter this figure directly.

Worked example (FY 2026-27): on a Rs. 200,000/month gross salary (Rs. 2,400,000/year), tax with no deductions is PKR 1.56 Lac/year. With Rs. 15,000/month structured as medical allowance (Rs. 180,000/year exempt), taxable income drops to Rs. 2,220,000 and tax falls to PKR 1.20 Lac/year — a saving of PKR 36,000/year from this exemption alone.

How to claim it

This isn't something you "claim" at filing time — it has to be structured into your salary breakdown by your employer, with a portion of gross pay designated as "medical allowance" on your payslip. If your current payslip shows 100% basic salary with no separate medical line, ask HR whether your compensation structure can be adjusted. It's entered automatically on your IRIS return once your salary certificate reflects the split.

2. Zakat deduction

Zakat deducted compulsorily from your bank account under the Zakat and Ushr Ordinance is subtracted directly from your tax payable, not just your taxable income — which makes it one of the most powerful deductions available, rupee for rupee. A tax credit (reducing tax owed directly) is worth more than a deduction of the same size (which only reduces taxable income before the rate is applied).

How to claim it

Banks deduct Zakat automatically from eligible accounts (typically savings accounts) on the first day of Ramadan each year and issue a deduction certificate. Keep that certificate — you'll enter the amount in the relevant credits section of your IRIS return.

3. Approved pension funds

Contributions to EOBI, approved pension funds, or Voluntary Pension Schemes (VPS) regulated by the SECP are deductible from taxable income. VPS contributions in particular can earn a tax credit of up to 20% of your taxable income (higher for those over 40, subject to annual limits) — worth discussing with a licensed pension fund manager if you're not already contributing.

How to claim it

Your pension fund manager issues an annual contribution certificate. The credit is entered on your return under pension/retirement contributions — keep the certificate in case FBR requests supporting documentation.

4. Life insurance premiums

Premiums paid to life insurance companies registered with the SECP are deductible up to Rs. 150,000/year (or 10% of taxable income, whichever is lower, subject to the applicable Finance Act limits). This applies to conventional life insurance and some takaful products.

How to claim it

Your insurer provides an annual premium payment certificate. Enter the eligible amount under the insurance premium credit section on IRIS during filing.

5. Charitable donations

Donations to FBR-approved non-profit organizations — including institutions like Edhi Foundation, Shaukat Khanum Memorial Cancer Hospital, and Aga Khan Development Network entities — qualify for a tax credit, generally capped at 30% of taxable income for individuals. Always confirm the receiving organization is on FBR's approved list before assuming eligibility — donations to unapproved organizations, however worthy, don't qualify for the tax credit even if the cause is genuine.

How to claim it

Keep the donation receipt showing the organization's name and its FBR-approved status/NTN. Enter the amount under the charitable donations credit section when filing.

Putting it together

These deductions stack: a salaried employee with a well-structured medical allowance, active Zakat deduction, and a pension fund contribution can often reduce effective tax by several percentage points compared to someone claiming none of them. None of these require a tax consultant to claim — they're entered directly on the IRIS return during filing.

Frequently asked

Can I claim deductions I forgot about after filing?

Yes, within limits — IRIS allows filing a revised return to add deductions you missed, provided you do it within the permitted revision window. Don't leave money on the table because you filed in a hurry; it's worth double-checking before the window closes.

Do these limits change every year?

Yes. Caps on life insurance premiums, pension credits, and donation limits are set in each year's Finance Act and can shift. The percentages above reflect current rules — always sanity-check against FBR's latest circular before relying on an exact cap for a large contribution.