How salary tax withholding works

The basic rule

When an employer pays you a salary, Section 149 of the Income Tax Ordinance 2001 requires the employer to deduct income tax from each payment and deposit it with the government. You never pay salary tax separately yourself — it comes off every payslip. This is sometimes called "tax deducted at source" or TDS.

How your employer works out the monthly amount

• Average rate method: your employer estimates your total salary for the whole tax year, works out the tax on it using the salaried slabs, and divides it across your pay. If your estimated annual tax is Rs 72,000, roughly Rs 6,000 comes off each month.
• Adjustments during the year: if your salary rises, you get a bonus, or you join mid-year, the employer re-estimates and adjusts the remaining months. That is why the deduction on your payslip can change even when the tax rates have not.
• Tax credits count: if you declare tax credits (for example for approved donations or pension contributions) or tax already withheld on your other income, your employer must take them into account and deduct less. Tell your payroll department — otherwise you overpay and wait for a refund.
• Other salary income: if you had salary from another employer in the same year, declare it, or the two employers may each apply the tax-free slice and leave you with a bill at filing time.

Withholding is not the final tax

The tax deducted from your salary is an advance payment toward your final liability for the year. When you file your annual return, the deducted amount is credited against the tax actually due on all your income. If too much was deducted, you claim a refund; if too little, you pay the difference. Keep your salary certificate (the statement of tax deducted that your employer issues) — it is the proof of what was withheld.

Our calculators show the monthly deduction as the annual tax spread evenly over the months you work — a close estimate of the Section 149 average-rate method, but your employer's figure can differ slightly because of bonuses, arrears or mid-year changes.

Estimates and general information only — not tax advice. Section references are to the Income Tax Ordinance 2001; rates last checked 4 November 2026.