Pakistan Investment Income Guide 2026

Overview — Investment Income Taxation

Investment income in Pakistan is generally included in the taxpayer's total income and taxed under the progressive IIT regime (0–45%), but many categories are subject to final withholding taxes that discharge the taxpayer's entire tax liability. The distinction between filers (those on the Active Taxpayer List) and non-filers is critical, as non-filers face significantly higher rates on most investment income categories. All rates in this guide are for filers unless otherwise stated.

Dividend Income — 15% (Filers)

Dividends received from Pakistan-resident companies are subject to a final withholding tax of 15% for filers and 25% for non-filers. The tax is deducted at source by the company paying the dividend. Mutual fund dividends (income distributions) are taxed at 10% for filers and 15% for non-filers. For corporate shareholders, dividends are included in taxable income and taxed at the corporate rate, but a tax credit is available for the dividend tax paid.

• Filers (on ATL): 15% (final tax for individuals)
• Non-filers: 25% (final tax)
• Mutual fund distributions (filers): 10%

Interest Income — 15–25% WHT

Interest income from bank deposits, savings accounts, and government securities is subject to withholding tax. For filers, the rate is 15% on bank interest and 15% on government securities. Non-filers face 25–30% withholding. Interest income above certain thresholds may be subject to advance tax under the banking transactions tax regime. Interest on savings accounts is taxed as part of total income for filers, with the WHT being adjustable. For non-filers, the tax is final and higher.

Rental Income — Taxed at IIT Slab Rates

Rental income from property is included in total income and taxed at progressive IIT rates (0–45%). A standard deduction of 20% of gross rent is allowed for repairs and maintenance without documentation. Actual expenses (property tax, insurance, utilities) may be claimed with proper documentation, but the 20% standard deduction is commonly used. Rental income from commercial and residential property is treated similarly. The FBR has introduced strict reporting requirements for rental income, including mandatory CNIC verification of tenants.

Investment in Mutual Funds and REITs

Mutual fund income (profit on debt funds, money market funds) is taxed at the fund level for certain categories and at the investor level for others. Income from equity funds is generally tax-exempt at the fund level, with capital gains on redemption taxed under the CGT regime (12.5% long-term, 15% short-term). REIT (Real Estate Investment Trust) income is subject to special tax treatment — rental income from REITs is taxed at 10–15% at the trust level, with distributions to investors being exempt from further tax.

FAQs

What is the tax treatment of Sukuk (Islamic bonds)?

Income from Sukuk is treated similarly to interest income for tax purposes, subject to 15% WHT for filers. The principal repayment is not taxable. Sukuk held to maturity may be subject to capital gains treatment if sold before maturity.

Are foreign investment income and gains taxable in Pakistan?

Yes, resident individuals are taxed on worldwide income, including foreign dividends, interest, and capital gains. A foreign tax credit is available for taxes paid abroad. Non-residents are taxed only on Pakistan-source income. Pakistan has double tax treaties with over 60 countries.

How is income from prize bonds and savings schemes taxed?

Prize bond winnings are subject to a final withholding tax of 15% for filers and 25% for non-filers on the prize amount above PKR 10,000. Income from national savings schemes (Behbood, Pensioners' Benefit, etc.) is taxed at 10–15% depending on the scheme and filer status.

Disclaimer

This guide provides general information about taxation of investment income in Pakistan for tax year 2026. Rates and rules are subject to change through the Finance Act. Always consult with a qualified tax advisor in Pakistan for advice specific to your situation. InvestmentKit does not provide tax advice.