In Pakistan’s fast-evolving gig economy, freelancing has surged as a profitable career choice, especially in fields like IT, graphic design, content writing, and digital marketing. With platforms like Upwork, Fiverr, and local marketplaces driving opportunities, freelancers are earning substantial incomes—often from international clients.

However, many remain unaware of their tax obligations, mistakenly assuming they align with regular income tax rules for salaried employees. This ultimate guide provides you differences between freelancer tax and regular income tax in Pakistan, offering detailed insights into tax rates, filing processes, deductions, compliance, incentives, and more.

Whether you’re a beginner or a veteran freelancer, this article equips you with everything you need to stay compliant and maximize earnings in 2025.

Understanding the Basics: What Are Regular Income Tax and Freelancer Tax?

Regular Income Tax in Pakistan

Regular income tax applies to salaried individuals employed by companies or organizations. Under Pakistan’s Pay As You Earn (PAYE) system, employers deduct taxes directly from monthly salaries and deposit them with the Federal Board of Revenue (FBR). This system simplifies tax compliance for employees, as most of the responsibility falls on the employer.

Freelancer Tax in Pakistan

Freelancer tax targets self-employed professionals who earn income independently through contracts, gigs, or projects—think web developers, writers, or digital marketers. Unlike salaried employees, freelancers must register with the FBR, calculate their tax liability, and file returns themselves. This self-managed approach introduces complexity but also offers flexibility in tax planning.

Why It Matters: Knowing these distinctions is critical to avoid penalties and optimize your tax strategy.

Freelancer Tax vs. Regular Income Tax: A Detailed Comparison

1. Tax Filing Process

Regular Employees

• How It Works: Taxes are withheld monthly by employers via payroll deductions.
• Filing Requirements: Employees file annual returns (Form 114) only if their taxable income exceeds PKR 600,000 (around USD 2,150 as of February 2025).
• Ease Factor: Minimal effort—employers handle most compliance.

Freelancers

• How It Works: Freelancers must register with the FBR for a National Tax Number (NTN) and file taxes proactively.
• Options Available:
  • Presumptive Tax Regime (Section 115(4)): Simplified filing based on gross receipts.
  • Normal Tax Regime: Detailed filing with income and expense declarations.
• Steps to Register: Use the FBR’s Iris portal (e.fbr.gov.pk) to apply for an NTN—takes about 15 minutes with a CNIC and basic details.

How to get NTN for freelancers in Pakistan” for step-by-step tutorials.

Regular Income Tax Slabs

Pakistan uses progressive tax slabs for salaried individuals:

• 0% for income up to PKR 600,000
• 5% for PKR 600,001–1,200,000.
• Up to 35% for income exceeding PKR 6 million

Freelancer Tax Rates

Freelancers have two options:

• Presumptive Tax Regime:
  • 1% of gross turnover if annual income is ≤ PKR 5 million
  • Example: Earn PKR 2 million from Upwork? Pay PKR 20,000 in tax. if not resgistered with PSEB.
• Normal Tax Regime:
  • Same progressive slabs as salaried individuals (0%–35%) if income exceeds PKR 5 million.
  • Example: Earn PKR 7 million? Tax liability aligns with regular slabs after deductions.

Deductions and Allowances

Regular Employees

• Standard Deductions:
  • Medical allowance: 10% of basic salary.
  • Conveyance allowance: Up to PKR 60,000 annually.
  • House rent allowance: Up to 45% of basic salary or PKR 270,000 (whichever is lower).
• Example: A PKR 1 million salary with PKR 200,000 in rent reduces taxable income significantly.

Read Also : If you wondering how much is tax on your salary check out our details article INCOME TAX CALCULATOR 2025

Freelancers

• Normal Regime:
  • Deductible expenses include internet bills, software subscriptions (e.g., Adobe, Canva), equipment (laptops, cameras), and home office costs (e.g., 20% of rent).
  • Example: Spend PKR 100,000 on tools for a PKR 1 million income? Taxable income drops to PKR 900,000.
• Presumptive Regime: No deductions allowed—tax is flat on gross receipts.

Freelancers

• Record-Keeping: Maintain invoices, bank statements, PayPal/Skrill records, and expense receipts.
• Advance Tax Payments: Quarterly payments due if income exceeds PKR 400,000 annually (adjustable against final liability).
• Deadline: December 31 for normal regime; quarterly for presumptive.

Regular Employees

• Effort Level: Almost none—employers file and deduct taxes automatically.
• Deadline: July 31 for annual reconciliation (if required).

Penalties for Non-Compliance

• Late Filing:
  • PKR 10,000 minimum penalty; escalates to PKR 20,000 for delays beyond 60 days.
• Non-Registration or Non-Filing:
  • 100% additional tax on assessed income (e.g., PKR 50,000 tax becomes PKR 100,000).
• Audit Risk: FBR can audit unreported income, especially from foreign remittances.

Real-World Example: A freelancer earning PKR 3 million who skips filing could face PKR 30,000 (1%) + PKR 20,000 penalty = PKR 50,000 in losses.

Tax Incentives and Exemptions

Freelancers

• IT Export Income: 0.25% tax rate on foreign earnings (e.g., Upwork, Freelancer.com) until June 2025—extended from 2023 due to lobbying by P@SHA.
• Digital Pakistan Initiative: Tax holidays for tech startups (up to 3 years if registered).
• 100% Tax Credit: For IT professionals investing in approved training programs (Finance Act 2022).

Regular Employees

• Limited to standard allowances; no sector-specific perks.

Step-by-Step Guide: How Freelancers Can Stay Compliant

1. Get an NTN:
   • Visit e.fbr.gov.pk, log in with your CNIC, and apply. Expect approval within 24–48 hours. ( Find Detail Infomration about the NTN on this page )
2. Choose Your Regime:
   • Presumptive: Best for low expenses or income < PKR 5 million.
   • Normal: Ideal for high expenses or earners above PKR 5 million.
3. Track Finances:
   • Use tools like QuickBooks, Wave, or Excel to log income (e.g., PayPal transfers) and expenses (e.g., Fiverr fees).
4. File Returns:
   • Normal regime: Annually by December 31 via Iris.
   • Presumptive: Quarterly statements (15th of April, July, October, January).
5. Consult Experts: Hire a tax consultant (PKR 5,000–15,000) for complex cases or you can contact us .

Debunking Myths About Freelancer Taxes in Pakistan

1. Myth: “Foreign income isn’t taxable.”
   Truth: Income remitted to Pakistani bank accounts (e.g., via Payoneer) is taxable under Section 111 of the Income Tax Ordinance 2001.
2. Myth: “Freelancers don’t need an NTN.”
   Truth: Without an NTN, you can’t invoice clients legally or file returns—risking fines.
3. Myth: “Small earnings are exempt.”
   Truth: Even PKR 100,000 triggers tax liability under the presumptive regime.

The Rule Explained

Under Section 115(4) of the Income Tax Ordinance 2001, freelancers (and other self-employed individuals) can opt for the presumptive tax regime, which levies a flat tax rate of 1% on gross turnover (total receipts before expenses) if their annual income does not exceed PKR 5 million. This regime is designed to simplify tax compliance for small-scale freelancers by eliminating the need to calculate deductions or file detailed expense records.

However, when a freelancer’s gross income surpasses PKR 5 million in a tax year (July 1 to June 30), they no longer qualify for the presumptive tax regime. Instead, they must shift to the normal tax regime.

In this case, their tax liability is calculated based on the progressive tax slabs outlined in the First Schedule of the Income Tax Ordinance, which are identical to those applied to salaried individuals under Section 12.

These slabs are updated annually in the Finance Act, and the rates for 2023-2024 (still relevant unless amended in 2025) are as follows:

Progressive FBR income Tax Slabs (2024-2025)

• Up to PKR 600,000: 0%
• PKR 600,001–1,200,000: 5% of the amount exceeding PKR 600,000
• PKR 1,200,001–2,400,000: PKR 30,000 + 15% of the amount exceeding PKR 1,200,000
• PKR 2,400,001–3,600,000: PKR 210,000 + 25% of the amount exceeding PKR 2,400,000
• PKR 3,600,001–6,000,000: PKR 510,000 + 30% of the amount exceeding PKR 3,600,000
• Above PKR 6,000,000: PKR 1,230,000 + 35% of the amount exceeding PKR 6,000,000

For freelancers under the normal regime, taxable income is calculated as gross income minus allowable business expenses (e.g., internet, software, office rent), unlike the presumptive regime where no deductions are permitted.

Practical Example: Calculating Your Tax

Scenario 1: Low-Income Freelancer

• Income: PKR 1.5 million (Upwork).
• Regime: Presumptive.
• Tax: 1% of PKR 1.5 million = PKR 15,000.
• No deductions apply.

Scenario 2: High-Income Freelancer

• Income: PKR 7 million.
• Expenses: PKR 1 million (software, internet, travel).
• Regime: Normal.
• Taxable Income: PKR 6 million.
• Tax (per slabs): ~PKR 1.35 million.

📢 Check out our Freelance FBR’s income tax calculator for a personalized estimate!

Freelancing in Pakistan offers unparalleled freedom and earning potential, but its tax obligations differ markedly from those of salaried employees. From choosing between the presumptive and normal regimes to leveraging IT-specific incentives like the 0.25% export rate, freelancers can minimize liabilities while staying compliant.

Accurate record-keeping, timely filings, and awareness of FBR rules are your keys to success. As Pakistan’s digital economy grows, understanding these nuances not only protects you from penalties but also positions you as a contributor to national progress.

FAQs: Freelancer Tax in Pakistan

Q1: Do I need to pay tax on cryptocurrency earnings as a freelancer?

Yes, crypto income is taxable as “income from other sources” under normal slabs.

Q2: Can I switch regimes mid-year?

No, you must stick to one regime for the full tax year (July–June).

Q3: What if I miss the filing deadline?

Late filings incur penalties, but you can appeal for a waiver with a valid reason (e.g., medical emergency).