Thanks everyone for contributing to this thread. I did some online search and found a lot of relative information since I started this topic.
I am going to share all the information here. You need to read all of it and make sense on your own because there are multiple solutions depending on your needs. Most of it revolves around what @mgalaxy3 has mentioned above.
But the recent changes announced in last budget has left everyone confused and scared about this new tax credit system.
I started with searching PSEB. Their website takes you back to the early 2000s. I don't who safarshi is managing the site, it's awful.
On their site I found about the freelancer registration. https://pseb.org.pk/app/ It tells you how much it cost to register and what IDs are required but doesn't mention what it is. What do the freelancers get in return for this membership. Is it required, is it optional, what does it do. There is no information available.
This link https://pseb.org.pk/pseb-programs/counselling-center is supposed to show you the benefits of registering with PSEB but it's broken.
Further searching about PSEB registration lead me to this actual registration form https://silo.tips/download/pseb-registration-form-for-freelancers At the bottom of this form it tells you to inform your bank your relevant SBP code for reporting export earnings. All the relevant codes are listed there.
Later I found a very interesting document called "National Freelancing Facilitation Policy 2021". I was glad to read it but soon realized it's just a draft, for now. Non the less good intiative. It talks about recognizing freelancers and giving them incentives like loans, health insurance, visa fasilitation, fast track opening bank accounts.
Here is the draft document. National Freelancing Facilitation Policy 2021 - Consultation Draft 2_0.pdf (1006.8 KB)
Then there is a thread on UpWork that's discussing the same topic of tax exemption on IT export and how to claim it etc. It was started in 2019 and the discussion is still going on. All the contributors are Pakistani freelancers sharing their experience and helping each other. It's a good read and I suggest you go through it from start to the end.
https://community.upwork.com/t5/Freelancers/Question-Tax-Exemption-for-Pakistani-Freelancers/td-p/620497
Then there is a matter of sales tax that is also discussed in above upwork thread.
Short summary
Until the latest budget most people recommended and preferred creating a proprietorship for single individual to register wtih PSEB to make things "Official" and to avoid FBR harassment. Others argued that PSEB registration is not required unless you are running a call center to claim the exemption. All you need is your invoices, PRCs and bank transaction history etc if and when there is an audit. You just file your taxes online. There is some information shared by this tax consultant here in 3 parts video series on youtube. https://www.youtube.com/watch?v=FxSleLSB8pk
If you do search there are plenty of videos showing how to file tax as a freelancer and claim tax exemption from IT exports.
Some also recommended if your annual income is less than 5 million then you don't even need to claim exemption from IT export, just file it as foreign remittance and no questions will be asked. Just make sure you have documents to prove that money came from outside Pakistan as remittance and for that bank statement and PRC is enough. Even if the annual income goes above 5 million they might ask you about source of income but there would be no tax.
This is my understanding after all the research and findings. I am not recommending any of it to anyone. I have not yet met any professional tax consultant or lawyer, which I will soon. Again there are different options available depending on individual needs.
