Step-by-Step Income Tax Filing in Pakistan for Startups and Businesses

Understanding income tax is fundamental for every registered business, startup founder, and freelancer in Pakistan. This article gives you an in-depth breakdown of how income tax works  from tax slabs and calculation methods to filing obligations and penalties.

What Is Income Tax in Pakistan?

Income tax is a direct tax levied on your income or profit during a fiscal year. It applies to:

• Individuals (including salaried persons, freelancers, and sole proprietors)
  
• Associations of Persons (AOPs) such as partnerships
  
• Companies (Private Limited, LLPs, etc.)

The tax is paid to the Federal Board of Revenue (FBR), which is responsible for assessment, collection, and enforcement.

Tax Year in Pakistan: How It Affects Income Tax

• The official tax year is from July 1 to June 30.
  
• It is denoted by the year in which it ends. For example, Tax Year 2025 covers July 1, 2024 to June 30, 2025.
  
• Income earned during this period must be declared in the return filed by September 30 (individuals) or December 31 (companies), unless extended by the FBR.

Who Has to Pay Income Tax?

How Income Tax in Pakistan Is Calculated

A. For Salaried Individuals (FY 2024-25 Slabs)

These slabs are progressive, meaning tax increases with higher income.

B. For Business Income / Freelancers / Sole Proprietors

Income is taxed under Section 113 of the Income Tax Ordinance. Rates and slabs are similar, but certain business expenses can be deducted to reduce taxable income (if accounted properly).

For example, software developers can deduct:

• Internet bills
  
• Laptop depreciation
  
• Hosting/software costs
  
• Office rent (if verifiable)

Income Tax for Companies

• Flat corporate tax rate: 29% (for most companies)
  
• Reduced rates may apply for:
  
  • Small companies (e.g., 20% for startups registered under SECP with turnover <250M)
    
  • Exporters (variable)
    
  • IT companies (with exemptions under PSEB certification, in some cases)

Only IT and IT-enabled services companies that register with the Pakistan Software Export Board (PSEB) under the Startup definition in Income Tax Ordinance Section 2(62A) may qualify for a three-year income tax exemption, provided they obtain official certification from PSEB.

How and When to File Income Tax

Platform: https://iris.fbr.gov.pk

Requirements:

1. NTN (National Tax Number) – automatically generated via registration on FBR IRIS
   
2. Books of account (or salary slips)
   
3. Wealth statement – mandatory even for salaried individuals
   
4. Bank account data, if required for reconciliation

How to File Income Tax: Step-by-Step Procedure

Filing your income tax in Pakistan is done through the FBR’s online portal called IRIS. Here’s how to do it:

Step 1: Register for NTN (if you haven’t already)

You need a National Tax Number (NTN) to file taxes.
If you’re salaried, a freelancer, or a startup founder, register through https://iris.fbr.gov.pk :

• Click “Registration for Unregistered Person”
  
• Fill in your CNIC, mobile number, and email
  
• Create an account and receive login credentials for IRIS
  
• Your NTN is automatically generated once your profile is approved

Read our complete step by step guide on how to register NTN with startup.

Step 2: Prepare the Documents You’ll Need

Depending on your status (salaried, freelancer, sole proprietor, company), collect:

• Salary slips (salaried individuals)
  
• Bank statements
  
• Invoices and receipts (for freelancers/startups)
  
• Utility bills or rent agreements (for office expenses)
  
• Asset details for your wealth statement
  
• CNICs of dependents (spouse, children, etc.)

Step 3: Log in to IRIS

Visit https://iris.fbr.gov.pk
Enter your username (CNIC) and password

Step 4: Fill Out the Return Form

You’ll be required to fill the following forms:

1. Income Tax Return

• Report all income: salary, business, freelance, rental, etc.
  
• Declare business expenses (if applicable)
  
• Calculate tax payable using built-in calculator
  

2. Wealth Statement (mandatory)

• Declare:
  
  • Total assets (property, car, bank balance)
    
  • Liabilities (loans, mortgages)
    
  • Movements during the year (changes in wealth)
    

The FBR cross-checks this with your bank transactions, vehicle registration, etc. Be accurate.

 Step 5: Review & Submit

• Double-check everything for accuracy
  
• If tax is payable, generate PSID (Payment Slip ID)
  
• Pay the tax via:
  
  • Bank branch
    
  • Online banking
    
  • ATM
    
• Return to IRIS and submit your tax return

Step 6: Download & Save Acknowledgement

After successful submission, download the Acknowledgement Slip.
This serves as proof of filing, and it confirms your name will appear in the Active Taxpayer List (ATL).

Due Dates:

• Salaried Individuals: September 30
  
• Businesses and AOPs: September 30
  
• Companies: December 31
  

Filing late means automatic penalty and you are removed from the Active Taxpayers List (ATL) causing higher withholding tax rates and loss of exemptions.

Withholding & Advance Tax: Mechanisms of Income Tax Collection

In Pakistan, withholding tax (WHT) and advance tax are not extra taxes; they’re just ways the government collects your income tax in advance. With WHT, a portion of your payment (like salaries, contractor fees, rent, or service charges) is deducted at source and sent directly to FBR by the payer, often your company. This ensures tax is collected on the spot and adds to the recipient’s income tax record.

Advance tax, on the other hand, applies mostly to companies and large AOPs. You’re required to estimate your annual income and pay your tax in four quarterly installments. These advance payments are adjusted at the end of the year when your final return is filed just like WHT.

Click here for a complete understanding of withholding tax and advanced tax.

Benefits of Filing Income Tax

1. You appear in ATL (Active Taxpayer List)
   
2. Enjoy reduced tax rates on:
   
   • Banking transactions
     
   • Vehicle/property registration
     
   • Dividends and profits
     
3. Essential for:
   
   • Visa applications
     
   • Opening business bank accounts
     
   • Government contracts/tenders
     
   • Legal compliance and investment

Penalties for Non-Compliance

Pro Tips for Startups and Founders

• Register your NTN and STRN early to avoid delays
  
• Always file on time, even if your income is NIL
  
• Maintain proof of expenses if you’re a freelancer or sole proprietor
  
• If you’re a startup with SECP & PSEB registration, claim your 3-year tax exemption
  
• Hire a tax consultant or accountant to file accurately, it’s worth it

Final Thoughts

Income tax in Pakistan isn’t just for big corporations. Whether you’re a freelancer, startup founder, or a growing company, it’s your legal responsibility and an opportunity to build legitimacy. Fulfilling tax obligations ensures you’re eligible for investment, contracts, and scale and shields you from penalties that can break your momentum.

FAQ