Working out your real take-home pay in Pakistan
Almost every dispute about pay in Pakistan is a dispute about which number is being discussed. There are four distinct figures between what your employer spends and what reaches your account, and people routinely compare one against another.
The four figures
| Figure | What it is | Common misuse |
|---|---|---|
| Cost to company | Everything the employer spends on you, including employer-only contributions and provisions | Quoted as if it were your salary |
| Gross salary | Cash pay before deductions, usually basic plus allowances | Assumed to equal taxable salary |
| Taxable salary | Cash pay plus the taxable value of benefits, less any exemption that applies | Skipped entirely in most calculations |
| Take-home pay | What reaches your account after income tax and every other deduction | Used to work backwards and estimate tax |
The sequence, in order
- Start from cost to company and strip out employer-only items — employer provident fund contribution, gratuity provision, employer EOBI share, group insurance premium.
- Identify gross cash salary — basic plus allowances actually paid to you.
- Add the taxable value of benefits — accommodation, a company vehicle, concessional loans, utilities, non-business reimbursements. Use the prescribed valuation basis, not cost to company.
- Deduct any exemption that genuinely applies and can be evidenced. This gives taxable salary.
- Compute annual tax on taxable salary using the slab table, then divide across payroll months — the slab structure.
- Deduct other payroll items — employee provident fund, EOBI employee share, insurance, loan recoveries, any advance.
- What remains is take-home pay.
You draw a salary, tax is deducted at source every month, and you want the return filed properly without spending a weekend inside IRIS.
Worked: Rs 300,000 a month
| Line | Monthly | Annual |
|---|---|---|
| Gross cash salary | Rs 300,000 | Rs 3,600,000 |
| Taxable salary (no valued benefits in this example) | Rs 300,000 | Rs 3,600,000 |
| Income tax: Rs 316,000 + 25% × Rs 400,000 | Rs 34,667 | Rs 416,000 |
| Employee provident fund contribution (illustrative) | Rs 15,000 | Rs 180,000 |
| Other deductions (illustrative) | Rs 3,000 | Rs 36,000 |
| Take-home pay | Rs 247,333 | Rs 2,968,000 |
Income tax alone gives Rs 265,333 a month. The additional Rs 18,000 of non-tax deductions is why calculators and payslips disagree — the calculator was not wrong about tax, it simply was not computing anything else. For tax by salary level, see tax on monthly salary.
Benefits are where offers differ most
Two offers with identical gross salary can produce different net pay:
- A company vehicle has a taxable value that raises your taxable salary while saving you a real cost.
- Provided accommodation likewise — taxable, but replacing rent you would otherwise pay from net income.
- A concessional loan carries a taxable benefit measured against a benchmark rate.
- Medical or insurance cover may be treated differently depending on the arrangement.
The right comparison is net cash position plus the value to you of benefits received — not gross salary, and not cost to company.
Comparing two offers properly
- Ask both employers for a breakdown into cash salary, benefits with taxable values, and employer-only costs.
- Compute taxable salary for each.
- Compute annual tax on each using the same slab table.
- Deduct expected non-tax payroll deductions for each.
- Add the value to you of benefits you would otherwise buy — housing, a car, medical cover.
- Compare the resulting figures.
Where the offers straddle a slab boundary, remember that only the excess above the threshold attracts the higher rate — crossing a boundary never reduces net pay. See marginal versus effective rates.
Reading your payslip properly
A payslip should let you verify the tax figure yourself. Check these four things each month:
- Is taxable salary shown separately from gross? If the payslip shows only gross and a tax figure, you cannot verify anything. Ask for taxable salary to be disclosed.
- Are benefits itemised with their taxable values? An unvalued benefit shifts the whole annual projection and is the most common cause of a year-end surprise.
- Does the tax line move when it should? After a bonus, increment or benefit change the deduction should change. A constant figure through a year in which your pay changed means the projection was never re-run.
- Does year-to-date tax match the fraction of the year elapsed? Compare cumulative deduction against the same fraction of the annual figure. That comparison catches errors a single month never reveals.
If any of the four fails, ask payroll for the annualisation working — the projection, the annual tax, deducted to date, and the balance spread. You are entitled to understand it, and requesting it is how systematic errors get found. See section 149.
If you are joining mid-year
Your first months may be deducted on an annualised projection that assumes twelve months at the new salary, even though you will only earn part of it in this tax year. Give the new employer your previous employer certificate so the projection uses actual year-to-date figures — otherwise the deduction is wrong in one direction or the other and settles only at filing. See multiple employers.
Sources
This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.
Questions people also ask
Why is my take-home lower than the salary calculator predicted?
Because most calculators compute income tax only. Your payslip also carries provident fund, EOBI, insurance contributions and any loan recovery. A calculator that shows Rs 187,000 net on Rs 200,000 gross is telling you the position after income tax alone, and the actual credit to your account will be lower.
Is provident fund deducted before or after tax?
The treatment depends on the type of fund and whether it is recognised, and the answer affects both your taxable salary and your net pay. Because the position varies, ask payroll for a line-by-line breakdown showing which deductions were taken before the tax computation and which after, rather than inferring it from the net figure.
My offer letter says cost to company. How do I get to take-home?
Cost to company includes elements that never reach you — employer contributions, provisions, sometimes an insurance premium. Ask for the breakdown into cash salary, benefits with their taxable value, and employer-only costs. Only then can you work out taxable salary and from there to net. Comparing two offers on cost to company alone is meaningless.
Are allowances taxed the same as basic salary?
Generally allowances form part of taxable salary unless a specific exemption applies to that allowance. A pay structure that shifts basic salary into allowances does not by itself reduce tax. If an offer is structured heavily around allowances, ask which of them are being treated as exempt and on what basis.
How do I compare a salary offer against a freelance rate?
Not on the headline numbers. Salary carries employer contributions, benefits and a lighter tax schedule; freelance income falls under the business schedule with a much steeper progression, and you carry your own overheads and compliance costs. Compute net of tax and net of costs on both before comparing.
Send the tax year and the transaction or filing involved, and we will tell you what is actually required.
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