Taxing the Pension Income Sections 12(2)(f), 39 and 149
The Finance Act, 2025 has brought about certain amendments in the Income Tax Ordinance, 2001 (the Ordinance, hereafter). Some significant amendments are explained hereunder:
Taxing the Pension Income Sections 12(2)(f), 39 and 149
The pension income is chargeable to tax either under section 12(2)(f) or section 39 of the Ordinance. Earlier pension received from a former employer was exempt under clauses
(8) and sub-clause (i) of clause (9) of the Ordinance. Through Finance Act 2025, the clauses
(8) and sub-clause (i) of clause (9) of the Ordinance have been omitted. Resultantly, pension from former employer is now chargeable to tax. As per section 12(2)(f) of the Ordinance pension received by a former employee is chargeable as final tax at the rate of 5% if it exceeds rupees ten million per annum and the recipient is less than 70 years old.
A recipient of pension shall not be chargeable to tax if he/she is older than seventy years of age or the amount of pension per annum is less than ten million rupees.
Pension of a person who continues to work for the said employer or its associate shall be chargeable at normal slab rates specified in Division I of Part I of the First Schedule of the Ordinance. The employer will continue to be responsible for withholding under section 149 and of collecting surcharge, if applicable under the provision of section 4AB, at the rate of 9%.
The private pension disbursed by Pension Fund Manager of voluntary Pension Scheme Rules 2005 and any other amount of pension not received from a former employer will continue to be charged to tax under section 39 of the Ordinance. Moreover, the commutation of pension, gratuity, fifty percent of the available balance in a pension account under certain specified conditions will continue to be exempt from tax under the relevant clauses of Part I of the Second Schedule of the Ordinance.
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