Pakistan & India Budget 2025-26: Complete Guide to Income Tax Changes & Key Highlights
The fiscal year 2025-26 represents a significant turning point in the tax landscapes of both Pakistan and India, with both countries introducing substantial reforms aimed at addressing economic challenges while providing relief to specific taxpayer segments. Pakistan’s Finance Minister Muhammad Aurangzeb presented a budget focused on tax burden reduction for salaried individuals and maintaining the tax collection target of Rs. 14.131 trillion for FY26 . Meanwhile, India’s Finance Minister Nirmala Sitharaman presented a Union Budget that introduced a new Income Tax Bill designed to replace the existing Income Tax Act of 1961, aiming to reduce complexity by up to 60% while making growth “all-inclusive” . These parallel reforms represent significant shifts in tax policy approaches between the neighboring nations, with both aiming to stimulate economic growth through different mechanisms.Income Tax Budget 2025
This comprehensive guide examines the key changes introduced in the Income Tax Budget 2025, covering both Pakistan and India. It provides taxpayers, professionals, and businesses with the essential information needed to navigate the new fiscal landscape. From revised tax slabs to administrative reforms, the Income Tax Budget 2025 breaks down the critical updates that will impact financial decisions across both nations throughout the coming fiscal year and beyond.
Use To Calculator : Income Tax Calculator 2025-26 Excel
New Income Tax Slabs 2025-26: What Changed?
Pakistan’s & India Income Tax Slabs for Salaried Individuals
Pakistan’s Finance Act 2025-26 has brought substantial tax relief for salaried individuals, particularly targeting low and middle-income earners who have historically borne a heavy tax burden. The government has introduced a revised tax structure that significantly slashes rates across various income brackets .
The table below illustrates Pakistan’s new tax structure for salaried individuals:
| Monthly Taxable Salary | Annual Salary | Total Tax 2025 | Total Tax 2026 | Monthly Tax 2025 | Monthly Tax 2026 | (Decrease Per Month) |
|---|---|---|---|---|---|---|
| 50,000 | 600,000 | – | – | – | – | – |
| 100,000 | 12,00,000 | 30,000 | 6,000 | 2,500 | 500 | (2,000) |
| 150,000 | 18,00,000 | 120,000 | 72,000 | 10,000 | 6,000 | (4,000) |
| 200,000 | 24,00,000 | 230,000 | 162,000 | 19,167 | 13,500 | (5,667) |
| 225,000 | 27,00,000 | 305,000 | 231,000 | 25,417 | 19,250 | (6,167) |
| 300,000 | 36,00,000 | 550,000 | 466,000 | 45,833 | 38,833 | (7,000) |
| 500,000 | 60,00,000 | 13,65,000 | 12,81,000 | 113,750 | 106,750 | (7,000) |
According to analysis of the changes, the tax relief is substantial for low-income earners, with cuts of up to 80% for those earning between Rs. 600,000 and Rs. 1.2 million annually, while higher earners above Rs. 4.1 million see minimal relief of around 3% . The National Assembly’s Standing Committee on Finance further approved amendments reducing the tax rate for incomes between Rs. 600,000 and Rs. 1.2 million from 2.5% to 1%, as confirmed by Prime Minister Shehbaz Sharif .
India’s New Tax Regime Structure
India has undertaken a more comprehensive overhaul of its tax system with the introduction of the Income Tax Act, 2025, which formally replaces the Income-tax Act of 1961 that had governed India’s taxation framework for over six decades . While the new law takes effect from April 1, 2026, the tax slabs for the financial year 2025-26 have already been revised under the framework of the new legislation .
The updated tax structure under India’s new regime is as follows:
| Income Tax Slabs | Tax Rate |
|---|---|
| Upto Rs. 4,00,000 | NIL |
| Rs. 4,00,001 – Rs. 8,00,000 | 5% |
| Rs. 8,00,001 – Rs. 12,00,000 | 10% |
| Rs. 12,00,001 – Rs. 16,00,000 | 15% |
| Rs. 16,00,001 – Rs. 20,00,000 | 20% |
| Rs. 20,00,001 – Rs. 24,00,000 | 25% |
| Above Rs. 24,00,000 | 30% |
A major highlight of India’s Budget 2025 tax reforms is the significant increase in rebate under Section 87A. The rebate has been raised to Rs 60,000, ensuring that individuals with a net taxable income of up to Rs 12 lakh pay no income tax . This marks a substantial increase from the previous rebate limit of Rs 25,000, which applied to incomes up to Rs 7 lakh . Additionally, the basic exemption limit has been revised upwards from Rs 3 lakh to Rs 4 lakh under the new tax regime .
Updated Tax Rates for Salaried Class
Impact on Pakistani Salaried Individuals
The revised tax structure in Pakistan delivers the most substantial benefits to low and middle-income salaried workers. According to detailed analysis, individuals earning between Rs. 600,000 and Rs. 1.2 million annually will see tax reductions of up to 80%, offering significant financial relief for those in the early stages of their careers . Middle-income earners falling in the Rs. 1.2 million to Rs. 4.1 million bracket will benefit from progressive reductions in tax rates designed to boost disposable income .
The Pakistani government has complemented these tax measures with a 10% pay raise and a 7% pension increase for government employees, representing a comprehensive approach to improving financial conditions for salaried individuals . These measures are part of a broader effort to stimulate economic growth while maintaining revenue collection through higher tax burdens on top earners, who will see limited relief of approximately 3% for incomes above Rs. 4.1 million .
India’s Approach to Salaried Tax Relief
India’s approach focuses on making the new tax regime more attractive through a combination of revised slabs and enhanced rebates. The increase in Section 87A rebate from Rs. 25,000 to Rs. 60,000 means that individuals with an income of up to Rs. 12,00,000 will now be eligible for a complete tax rebate, resulting in zero tax liability . When combined with the standard deduction of Rs. 75,000 available to salaried taxpayers, those earning up to Rs. 12.75 lakh annually will not be required to pay any income tax under the revised structure .
Unlike Pakistan’s targeted approach for different income segments, India has implemented broad-based reforms that simplify the tax system while providing relief across multiple income brackets. The restructured slabs introduce more progressive taxation, with six brackets between nil and 30% compared to the previous structure . The government has stated that these tax revisions would result in the government foregoing Rs. 1 lakh crore in direct tax revenue and Rs. 2,600 crore in indirect taxes, indicating the significant scale of relief provided .
Budget Impact on Taxpayers: Who Pays More, Who Pays Less?
Relief for Middle-Class Professionals
Both countries have designed their tax policies to provide substantial relief to middle-class professionals, though through different mechanisms.
In Pakistan, the middle-class benefit is most pronounced for those earning between Rs. 1.2 million and Rs. 4.1 million annually, who will see progressive reductions in their tax liabilities . The dramatic reduction in taxes for the Rs. 600,000 to Rs. 1.2 million bracket (from 2.5% to 1%) specifically targets the lower segment of the middle class, potentially bringing many formal sector workers into the tax net with minimal burden while increasing their take-home pay .
India’s approach to middle-class relief is achieved through the enhanced rebate system and restructured slabs. The increase in the Section 87A rebate to Rs. 60,000 means that a larger segment of the middle class (with incomes up to Rs. 12 lakh) will pay zero tax . Those earning above this threshold will benefit from the revised slabs that introduce lower rates for incomes between Rs. 8-24 lakh compared to the previous structure, where a flat 30% rate applied to income above Rs. 15 lakh .
Higher Burden on Non-Filers
Pakistan’s budget maintains a stricter approach toward non-filers, with continued restrictions on financial transactions and property purchases for those not appearing on the active taxpayer list. The government has signaled its intention to broaden the tax base rather than increasing rates on existing taxpayers, though specific measures targeting non-filers in the Budget 2025-26 require consultation of the official Finance Act documents .
India has taken a different approach by removing Sections 206AB and 206CCA, which imposed higher TDS and TCS rates—either twice the prescribed rate or 5%—on non-filers with aggregate TDS/TCS of Rs. 50,000 or more . While these provisions were intended to motivate taxpayers, they led to significant compliance challenges, particularly for businesses and small taxpayers, as verifying return filings became cumbersome . The removal of these sections aims to reduce the compliance burden and simplify the tax process, with the amendments set to take effect from April 1, 2025 .
Special Considerations for Freelancers and IT Sector
India has introduced specific provisions to support its growing digital economy and freelancing sector. The insertion of Section 44BBD introduces a presumptive taxation scheme specifically for non-residents who provide services or technology to Indian companies engaged in electronics manufacturing . Under this provision, 25% of the amounts paid or payable to non-residents, or received or receivable by them for providing such services or technology, will be considered as their gross receipts for tax purposes . This move aligns with India’s focus on strengthening its electronics manufacturing ecosystem and attracting global expertise to drive innovation and growth .
For freelancers and professionals in both countries, the rationalization of TDS thresholds presents significant compliance easing. India has raised threshold limits across various TDS sections, including increases for interest on securities, interest other than on securities (particularly for senior citizens), dividends, mutual fund units, and several other categories . Similarly, Pakistan typically announces adjustments to withholding tax rates in its budget, though specific details for the IT sector and freelancers in the current budget would require consultation of the official Finance Act .
FBR Income Tax Updates 2025: Administrative Changes
Digitalization of Tax Filing
Both revenue authorities continue to advance their digital transformation agendas to simplify tax compliance and improve efficiency.
India’s new Income Tax Act, 2025 explicitly embraces a digital-first approach to enforcement and compliance . The legislation enables faceless assessments and digital compliance mechanisms designed to reduce human interface and potential corruption while improving transparency . The Act also introduces the concept of a unified ‘Tax Year’ replacing the earlier distinction between ‘Previous Year’ and ‘Assessment Year,’ simplifying the procedural framework for taxpayers .
Pakistan’s Federal Board of Revenue (FBR) has similarly been advancing its digitalization initiatives, though the specific updates for the 2025-26 fiscal year are outlined in the official Finance Act documents available on the FBR website . These typically include enhancements to the Iris portal, mobile applications for tax compliance, and automated systems for return processing and refund issuance.
Withholding Tax Adjustments
Significant changes to withholding tax provisions represent a key administrative reform in both countries’ budgets.
India has implemented comprehensive rationalization of TDS/TCS thresholds to ease compliance challenges for taxpayers, especially middle-income earners . The government has raised the threshold limits across various TDS sections, including:
- Interest on securities: Threshold increased from NIL to 10,000
- Interest other than on securities: For senior citizens, increased from 50,000 to 1,00,000; for others when payer is bank, cooperative society and post office, increased from 40,000 to 50,000
- Rent payments: Threshold significantly increased from 2,40,000 to 6,00,000 annually
- Fee for professional services: Limit raised from 30,000 to 50,000
Additionally, the TCS on purchase of goods will be removed entirely, effective from April 1, 2025, and higher TDS rates will apply only in cases where taxpayers do not provide PAN .
Pakistan typically announces similar adjustments to withholding tax rates and thresholds in its annual budget, though the specific changes for 2025-26 would require consultation of the complete Finance Act available on the FBR website .
Indirect Taxes and GST Changes in Budget 2025
Sales Tax and GST Adjustments
While India’s Union Budget 2025 focused primarily on direct tax reforms, it did include some customs duty rationalization aimed at correcting duty inversion and boosting domestic manufacturing . The budget proposed the removal of 7 more tariff rates over and above the 7 tariff rates that were removed in the 2023-24 budget, leaving only 8 rates, including the ‘zero’ rate . Additionally, the government stipulated that only one cess or surcharge per item would be levied, exempting Social Welfare Surcharge on 82 tariff lines with cess .
For Pakistan, the detailed Sales Tax Act amendments for the 2025-26 fiscal year are covered in the official “Explanation regarding Important Amendments made in Sales Tax Act, 1990 and Federal Excise Act, 2005” document referenced on the FBR website, which would need to be consulted for specific sectoral changes .
Impact on Real Estate Sector
The treatment of real estate transactions and property income has seen important updates in both countries.
India’s new Income Tax Act, 2025 addresses several property-related tax provisions based on recommendations from the Select Committee. These include:
- Vacant property tax relief: Eliminating the notional rent-based tax levy on unoccupied properties
- Clarity in property income calculations: Applying the 30 percent standard deduction after deducting municipal taxes and extending home loan interest deductions to rented properties
- Property classification clarity: Modifying the term “occupied” to avoid confusion between residential and commercial usage
Pakistan’s budget typically includes specific provisions affecting the real estate sector, particularly through adjustments to withholding taxes on property transactions and potential changes to the capital gains tax regime, though the specific measures for 2025-26 would require consultation of the complete Finance Act .
Sector-Specific Budget Analysis
Agriculture Sector Tax Reforms
While the search results don’t detail specific agricultural sector reforms in either country’s budget, both Pakistan and India typically include agriculture support measures in their annual budgets. These often include exemptions or special regimes for agricultural income, support for agricultural inputs through duty reductions, and specific credit facilities for the farming community.
Budget for SMEs and Startups
India’s Budget 2025 extended significant support for startups by extending the deadline for incorporation of eligible startups from 2025 to 2030 to avail of tax holiday benefits . This provides a longer timeframe for new ventures to establish themselves and benefit from fiscal incentives.
The budget also introduced MSME definition alignment, adopting the definition under the MSME Act for consistency, where micro and small enterprises are classified based on investment in machinery and annual turnover . This harmonization simplifies compliance for small businesses operating across different regulatory frameworks.
Pakistan’s budget typically includes similar measures for SME support, though specific initiatives for the 2025-26 fiscal year would require consultation of the complete budget documents and Finance Act available on official government websites .
Export and Import Sector Considerations
Both countries have implemented customs duty adjustments aimed at boosting specific manufacturing sectors while addressing sector-specific challenges.
India’s custom duty proposals focused on several key areas:
- Healthcare relief: 36 lifesaving drugs/medicines granted full Basic Customs Duty (BCD) exemption, with 6 others receiving a concessional 5% customs duty, providing relief to patients, particularly those suffering from cancer, rare diseases and other severe chronic diseases
- Critical minerals: Full BCD exemption on 25 critical minerals not available domestically, including cobalt powder, lithium-ion battery scrap, lead, zinc, and 12 more critical minerals to support domestic manufacturing and job creation
- Electronics sector: To rectify inverted duty structure, BCD on Interactive Flat Panel Display (IFPD) increased from 10% to 20% while reduced to 5% on open cell and other components; open cell components on LCD/LED TVs will now stand fully exempted from BCD to boost domestic manufacturing
- Lithium-ion batteries: BCD exemption on 35 capital goods for EV battery manufacturing along with 28 additional capital goods for mobile phone battery manufacturing
Pakistan’s custom duty changes for the import/export sector are typically detailed in the Budget documents and would need to be consulted for specific measures affecting cross-border trade .
Economic Implications and Growth Projections
Inflation and Fiscal Management
The economic implications of the tax reforms in both countries reflect a balancing act between providing relief to taxpayers and maintaining fiscal discipline.
In Pakistan, the government is navigating a challenging economic environment while attempting to provide significant tax relief to salaried individuals. The budget manages a projected tax collection target of Rs. 14.131 trillion for FY26, despite the substantial tax cuts for low and middle-income earners . This suggests expectations of improved compliance and base broadening to compensate for the reduced rates.
India’s finance ministry has acknowledged that the direct tax reforms would result in the government foregoing approximately Rs. 1 lakh crore in direct tax revenue and Rs. 2,600 crore in indirect taxes . This substantial revenue impact indicates the government’s confidence in achieving fiscal targets through improved compliance, economic expansion, and potential non-tax revenue sources.
IMF Conditions and Budget Reforms
Both countries have been operating in the context of IMF program requirements, which influence budget formulation and reform priorities.
Pakistan’s budget measures appear to align with typical IMF structural benchmarks, including efforts to broaden the tax base, reduce regressive subsidies, and maintain fiscal discipline despite the targeted relief measures. The specific alignment with Pakistan’s IMF program conditions would be detailed in the full budget documents and accompanying fiscal policy statements .
India’s reforms, particularly the comprehensive overhaul of the Income Tax Act, reflect a longer-term structural reform agenda that goes beyond immediate fiscal management concerns. The simplification of tax laws, reduction of compliance burdens, and embrace of digital technologies align with broader economic governance improvements rather than specific IMF conditionalities .
Foreign Investment Climate
The budget measures in both countries include elements designed to improve the foreign investment climate and attract international capital.
India’s introduction of Section 44BBD creating a presumptive taxation scheme for non-residents providing services or technology to Indian electronics manufacturers represents a targeted approach to attracting foreign expertise in specific sectors . The broader tax simplification agenda and the replacement of the 1961 Income Tax Act with a modern, streamlined framework also contribute to improving India’s appeal for foreign investors .
Pakistan’s budget typically includes measures affecting foreign investment, though specific initiatives for the 2025-26 fiscal year would require consultation of the complete budget documents and investment policy statements .
Why Choose ICT – Institute of Corporate and Taxation Islamabad
In the context of these significant tax reforms in both Pakistan and India, the role of specialized tax education has never been more critical. The Institute of Corporate and Taxation (ICT) Islamabad provides essential expertise for navigating the complex landscape of national and international taxation.
Expert Guidance on New Tax Regulations
ICT offers specialized programs that cover the practical implications of budget changes, including the new income tax slabs in Pakistan, updated withholding tax provisions, and sector-specific impacts. The institute’s curriculum is designed to help professionals, businesses, and students understand both Pakistani tax reforms and comparative international tax systems, including India’s new Income Tax Act, 2025.
Comprehensive Tax Education
For professionals seeking to enhance their expertise in the wake of these substantial reforms, ICT provides targeted education on both Pakistani tax laws and international best practices. The institute’s programs are particularly valuable given the dramatic changes introduced in both countries’ tax systems, enabling participants to provide informed guidance to businesses and individuals navigating the new fiscal environment.
Conclusion: Take Control of Your Tax Future
The Budget 2025-26 reforms in both Pakistan and India represent significant shifts in tax policy with far-reaching implications for individuals, businesses, and professionals in both countries.
Key Takeaways for Taxpayers
- Pakistani salaried individuals should carefully review the new tax slabs to understand their reduced liabilities, particularly those in the Rs. 600,000 to Rs. 1.2 million bracket who benefit from the most dramatic cuts
- Indian taxpayers need to evaluate whether the new tax regime with its enhanced rebates and revised slabs is more beneficial than the old regime with its deductions, understanding that the new regime is now the default option
- Businesses operating in both countries should assess the impact of changed withholding tax thresholds, customs duty adjustments, and sector-specific measures on their operations and compliance processes
Strategic Tax Planning Recommendations
- Review withholding tax obligations in light of the revised thresholds in India and likely similar adjustments in Pakistan
- Evaluate regime selection carefully for Indian taxpayers, considering that those with business income can switch from the old to the new tax regime only once in a lifetime
- Consult complete budget documents for Pakistan-specific measures beyond tax slabs, including sales tax, federal excise, and customs duty changes
The substantial reforms in both countries’ tax systems underscore the importance of maintaining current knowledge and seeking professional guidance for optimal tax planning. As both nations continue their digital transformation of tax administration, taxpayers who proactively adapt to these changes will be best positioned to maximize their benefits while maintaining full compliance.
For detailed specific advice tailored to your individual circumstances, consult a qualified tax professional or refer to the official Finance Act documents available on the FBR (Pakistan) and CBDT (India) websites.