Budget 2025-26: Govt hikes tax on interest income, targets e-commerce and high pensions

In its bid to expand the tax net and shore up revenues, the federal government has proposed a raft of new taxation measures in the Budget 2025-26, including a notable increase in the tax on interest income and new levies aimed at the booming digital economy.

According to the budget documents presented on Tuesday, the tax rate on interest income will be raised from 15% to 20%. This hike will apply to passive income streams such as bank deposits and investment returns—excluding National Savings schemes, which have been specifically spared from the increase.

In a further effort to modernise tax collection and regulate the online marketplace, the government has proposed taxing e-commerce platforms. These platforms will now be obligated to deduct taxes on digitally ordered goods and services, in addition to submitting monthly transaction data and tax filings.

Another substantial move is the introduction of a 25% tax on income generated through loans, signalling the government’s intention to regulate non-productive financial arrangements. Meanwhile, the tax rate on profits earned through shares will remain unchanged, offering some breathing room for stock market investors.

In a more targeted effort to ensure tax equity, the budget also introduces a 5% tax on annual pensions exceeding Rs10 million for individuals under the age of 70. However, the government has assured that low- and middle-income pensioners will not be affected, maintaining relief for those dependent on modest retirement savings.