Tax term

Tax deduction

An amount that may reduce income used in a tax calculation.

Because a deduction shrinks the income the bands are applied to, its worth depends on the rate of the band it removes, and two employees with the same permitted Rs 100,000 do not save the same amount of tax. In the 2026-27 salaried table, taxable income of Rs 4,500,000 is priced at Rs 657,000 and Rs 4,400,000 at Rs 628,000, so that Rs 100,000 sits inside the 29% band and takes Rs 29,000 off the estimate. The identical deduction for someone whose income falls in the first band saves nothing at all. A deduction exists only where a rule allows it and its conditions are satisfied, which is why the calculator’s deduction field is an input rather than an approval. The habitual mistake is entering EOBI, provident-fund or insurance lines because they appear on a payslip, then presenting the lower estimate as a settled position. Ask payroll and FBR which provision permits each amount.

Check the legal meaning in context and against the relevant tax year.