How To Compute Tax On Commission Income In Pakistan?

Commission income is a common form of earnings in Pakistan, especially for professionals in fields like sales, real estate, insurance, and brokerage. While it can be lucrative, it is also subject to Tax Calculator Pakistan under Pakistan’s Income Tax Ordinance, 2001. Knowing how to correctly compute tax on commission income is essential to remain compliant with the law and avoid penalties. This guide explains how commission income is taxed and outlines the steps involved in computing tax accurately.

What is Commission Income?

Commission income refers to earnings received for facilitating or completing transactions on behalf of others. It is generally a percentage of the total value of a deal or sale. This type of income is considered taxable under the head “Income from Business or Profession” or “Income from Other Sources”, depending on the nature of the taxpayer's work.

Who Pays Tax on Commission Income?

Anyone earning commission—whether an individual, sole proprietor, or business entity—is liable to pay tax on this income. This includes:

Real estate agents
Insurance agents
Sales representatives
Freelancers and brokers
Marketing professionals earning incentive-based pay

Steps to Compute Tax on Commission Income

1. Determine the Gross Commission Income

Start by calculating the total commission earned during the financial year. This includes all amounts received before any deductions or expenses. For example, if you closed multiple deals and earned PKR 1,200,000 in commissions during the year, that is your gross commission income.

2. Deduct Allowable Business Expenses (if applicable)

If you're operating as a business or professional, you can deduct certain allowable expenses from your gross income by Tax Calculator Pakistan. These may include:

Office rent
Marketing costs
Communication expenses
Travel expenses for client meetings
Depreciation on business assets

Let’s say your total allowable expenses are PKR 200,000. Deduct this from the gross commission income to arrive at net taxable income:

PKR 1,200,000 – PKR 200,000 = PKR 1,000,000

3. Apply the Relevant Tax Slab

For individuals, Pakistan follows a progressive tax rate system for income tax. The tax slabs for salaried and non-salaried individuals differ slightly. Since commission income is usually considered non-salaried, the applicable slab rates for non-salaried individuals will apply.

As of the current tax year (subject to annual changes in the budget), here’s a simplified breakdown of non-salaried individual tax slabs:

Up to PKR 600,000: 0%
PKR 600,001 – PKR 1,200,000: 15%
PKR 1,200,001 – PKR 2,400,000: 20%
PKR 2,400,001 and above: 25%

So, on a net taxable income of PKR 1,000,000, the tax would be calculated as:

PKR 1,000,000 – PKR 600,000 = PKR 400,000 (taxable)

Tax = 15% of PKR 400,000 = PKR 60,000

4. Withholding Tax Consideration

In many cases, companies or employers who pay commission deduct withholding tax at the source—often between 12% to 15%, depending on filer status. This amount is reported in your annual return and adjusted against your total tax liability.

So, if PKR 50,000 was already deducted as withholding tax, your remaining tax payable may reduce to:

PKR 60,000 – PKR 50,000 = PKR 10,000

5. File Your Tax Return

After computing your total taxable commission income and tax liability, the next step is to file your Income Tax Return using FBR’s Iris portal. Be sure to:

Declare all commission income
Attach relevant withholding tax certificates (Form 16A)
Claim any business expense deductions
Adjust for already paid taxes

Additional Tips for Compliance

Maintain proper records of all commissions, payments, invoices, and expenses.
Become a filer to enjoy lower withholding tax rates and legal benefits.
Use the FBR tax calculator or consult a tax professional to ensure accuracy.

Conclusion

Computing tax on commission income in Pakistan involves calculating gross earnings, subtracting allowable expenses, and applying the correct tax rates. While it may seem complex, using online tools like Hamza & Hamza Law Associates and understanding the tax structure can simplify the process. Timely and accurate filing not only ensures compliance but also protects you from penalties, while helping you benefit from legal tax deductions.