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Tax on taxable income
(1) Subject to this Ordinance, income tax shall be imposed for each tax year, at the rate or rates specified in Division I or II of Part I of the First Schedule, as the case may be, on every person who has taxable income for the year.
(2) The income tax payable by a taxpayer for a tax year shall be computed by applying the rate or rates of tax applicable to the taxpayer under this Ordinance to the taxable income of the taxpayer for the year, and from the resulting amount shall be subtracted any tax credits allowed to the taxpayer for the year.
(3) Where a taxpayer is allowed more than one tax credit for a tax year, the credits shall be applied in the following order –
(a) any foreign tax credit allowed under section 103; then
(b) any tax credit allowed under Part X of Chapter III; and then
(c) any tax credit allowed under sections 147 and 168.
(4) Certain classes of income (including the income of certain classes of persons) may be subject to –
(a) separate taxation as provided under this chapter ; or (b) collection of tax under Division II of Part V of Chapter X or deduction of tax under Division III of Part V of Chapter X as a final tax on the income of the person.
(5) Income referred to in sub-section (4) shall be subject to tax as provided for under this chapter , or Part V of Chapter X, as the case may be, and shall not be included in the computation of taxable income in accordance with section 8 or 169, as the case may be.
(6) Where, by virtue of any provision of this Ordinance, income tax is to be deducted at source or collected or paid in advance, it shall, as the case may be, be so deducted, collected or paid, accordingly .
(2) The income tax payable by a taxpayer for a tax year shall be computed by applying the rate or rates of tax applicable to the taxpayer under this Ordinance to the taxable income of the taxpayer for the year, and from the resulting amount shall be subtracted any tax credits allowed to the taxpayer for the year.
(3) Where a taxpayer is allowed more than one tax credit for a tax year, the credits shall be applied in the following order –
(a) any foreign tax credit allowed under section 103; then
(b) any tax credit allowed under Part X of Chapter III; and then
(c) any tax credit allowed under sections 147 and 168.
(4) Certain classes of income (including the income of certain classes of persons) may be subject to –
(a) separate taxation as provided under this chapter ; or (b) collection of tax under Division II of Part V of Chapter X or deduction of tax under Division III of Part V of Chapter X as a final tax on the income of the person.
(5) Income referred to in sub-section (4) shall be subject to tax as provided for under this chapter , or Part V of Chapter X, as the case may be, and shall not be included in the computation of taxable income in accordance with section 8 or 169, as the case may be.
(6) Where, by virtue of any provision of this Ordinance, income tax is to be deducted at source or collected or paid in advance, it shall, as the case may be, be so deducted, collected or paid, accordingly .
Amendment history (13)
- The words and letters “Division I or II” substituted by the Finance Act, 2010.
- The expression “IB” omitted through Finance Act, 2020 dated 30 June, 2020
- The figure and comma “140,” omitted by the Finance Act, 2003.
- The expression “in sections 5, 6 and 7” substituted by the Finance Act, 2022.
- The word “or” substituted by the Finance Act, 2010.
- Added by the Finance Act, 2003.
- The semicolon substituted by the Finance Act, 2005.
- Omitted by the Finance Act, 2014. Section 4A was added by Income Tax (Amendment) Ordinance,
- Section (4AB) inserted by the Finance Act, 2024.
- The expression “(4AB)” substituted by the Finance Act, 2026.
- Full stop substituted by semi-colon and a new proviso added by the Finance Act, 2025.
- in a tax year” substituted by the Finance Act, 2026.
- Inserted by the Finance Act, 2015.
Amendment notes captured from the source page(s); they may include changes to neighbouring provisions.
Source FBR PDF page 33
Unofficial reference, compiled from the FBR’s consolidated Income Tax Ordinance 2001 (amended up to 30 June 2026). Provided for general information only — not an official FBR publication and not legal or tax advice. Always verify against the official FBR text before relying on it for filing or any decision.