Medical Allowance Is Tax-Free Up to 10% of Basic: What It Saves You
Medical allowance up to 10% of basic salary is exempt from income tax. The yearly saving at three salaries, and how other allowances are taxed.
By the TurantTools PK team · Updated 28 October 2026 · 3 min read
A Pakistani offer letter usually splits pay into basic salary, house rent, medical and utility allowances. One difference matters for tax: a medical allowance of up to 10% of basic salary is exempt, as long as your employer doesn't separately give free treatment or hospital cover (Second Schedule to the Income Tax Ordinance).
How much it saves (2026-27)
| Gross a month | Basic | Medical allowance (10%) | Tax with no exemption | Tax with the exemption | Saving a year |
|---|---|---|---|---|---|
| Rs 100,000 | Rs 65,000 | Rs 6,500 | Rs 6,000 | Rs 5,220 | Rs 780 |
| Rs 200,000 | Rs 130,000 | Rs 13,000 | Rs 156,000 | Rs 124,800 | Rs 31,200 |
| Rs 400,000 | Rs 260,000 | Rs 26,000 | Rs 744,000 | Rs 653,520 | Rs 90,480 |
Other allowances
- House rent allowance and utility allowance are fully taxable.
- A company car used privately adds part of its cost to your taxable salary.
- Employer contributions to a recognised provident fund are exempt up to a limit.