The Rs 10 Million Surcharge Cliff, and Why Earning More Could Leave You With Less

Most tax thresholds in Pakistan are gentle. You cross into a higher slab and only the money above the line is taxed at the higher rate. The section 4AB surcharge did not work like that, and for two tax years it produced a result that surprises people.

How the surcharge worked

Section 4AB was introduced by the Finance Act 2024 and applied to individuals whose taxable income for the year exceeded Rs 10 million. It was charged at 10% for tax year 2025 and reduced to 9% for tax year 2026.

The important detail is what it was charged on. It was a percentage of the tax you owed, not of the income above the threshold. Pass Rs 10 million by a single rupee and the surcharge applied to your entire tax bill for the year.

What that does to the arithmetic

Take tax year 2026. On taxable income of exactly Rs 10,000,000, the tax works out at Rs 2,681,000 and no surcharge is due, so you keep Rs 7,319,000.

Now take Rs 10,200,000. The tax on that is Rs 2,751,000, and because you are over the threshold, 9% of it is added as surcharge. That is another Rs 247,590, giving a total of Rs 2,998,590 and leaving you Rs 7,201,410.

You earned Rs 200,000 more and kept Rs 117,590 less.

Where the band ends

Take home pay does not recover until taxable income reaches roughly Rs 10,390,000 for tax year 2026. Anywhere between Rs 10 million and about Rs 10.39 million, you would have been better off earning less.

For tax year 2025, when the surcharge was 10%, the affected band was slightly wider and the worst point cost about Rs 276,000.

Does this still apply

No. The surcharge was withdrawn with effect from 1 July 2026, so it does not apply to tax year 2027 onward. It matters if you are filing or revising a return for tax year 2025 or 2026, or if you are looking back at what was deducted from a bonus in those years.

Our tax calculator models the surcharge for the years it applied, and warns you when a salary you enter falls inside the band.

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Last updated: 28 July 2026  ·  Tax year: TY2025 and TY2026

Sources

• Income Tax Ordinance 2001, section 4AB (surcharge on high income individuals)
• Finance Act 2024, introduction of section 4AB at 10%
• Finance Act 2025, reduction of the section 4AB rate to 9%
• Finance Act 2026, withdrawal of the surcharge from 1 July 2026
• Professional firm commentary on the section 4AB surcharge, accessed 28 July 2026

This article gives general information about tax in Pakistan. It is not advice on your own situation. Rules and rates change, sometimes in the middle of a year. Before you act on anything here, check the current position with the FBR or a registered tax practitioner.