Finance Act 2026 Is in Force: What Changed on 1 July
The federal budget for 2026-27 was presented by Finance Minister Muhammad Aurangzeb on 12 June 2026. The Finance Act passed the National Assembly on 23 June, was gazetted on 26 June, and took effect on 1 July 2026 — which in tax terms means Tax Year 2027.
Salary tax was cut across four bands
- Rs 2.2m – 3.2m: 23% → 20%
- Rs 3.2m – 4.1m: 30% → 25%
- Rs 4.1m – 5.6m: 35% → 29%
- Rs 5.6m – 7.0m: 35% → 32%
The practical effect is that the top 35% rate no longer starts at Rs 4.1 million. It now starts at Rs 7 million, with two new graduated bands in between.
The 9% surcharge is gone for the salaried
The surcharge under section 4AB, charged on the whole tax bill once taxable income passed Rs 10 million, has been removed for the salaried class. It had already been cut from 10% to 9% the year before.
This is specific to salary income. If your income is from business or another non-salary source, do not assume the surcharge no longer applies to you.
The removal matters more than the headline rate suggests, because the surcharge was a cliff rather than a taper: one rupee over Rs 10 million levied 9% on the entire bill, not on the rupee that crossed the line. A raise could genuinely leave a person worse off. We set out the arithmetic in the year-on-year comparison, which shows the saving jumping from Rs 207,000 at Rs 10 million to Rs 464,040 at Rs 10.5 million.
Also in the Act
The minimum monthly wage was raised by 10%, from Rs 37,000 to Rs 40,700.
What to do about it
Check your own figure rather than reading off a table, because the bands are marginal. Put your annual salary into the income tax calculator and switch between Tax Year 2026 and Tax Year 2027 to see the difference. If your monthly deduction has not changed since July, your employer may still be running payroll on the old table — worth raising, because it is your money until you file.
