ISLAMABAD: The Federal Board of Revenue (FBR) has announced income tax exemptions totaling Rs 1.65 billion on gratuity payments made to individuals during the past tax year. This move aims to ease the financial transition for retiring employees.
According to the FBR’s Income Tax Expenditure Report 2024, these exemptions were granted under Clause 13, Part I of the Second Schedule of the Income Tax Ordinance, 2001. This provision allows for full or partial tax exemption on income received as gratuity, subject to specific criteria and recipient categories.
The FBR clarified that this tax relief applies to various groups, including government employees, staff of statutory organizations, and individuals working in the private sector. For government employees and those working for local governments, corporations, or statutory bodies, the tax-exempt gratuity amount must be in line with the rules and regulations governing their employment terms.
For private sector employees, gratuity received from a fund approved by the Commissioner—following the guidelines in Part III of the Sixth Schedule—is eligible for exemption. Additionally, gratuity payments up to Rs 300,000 are also exempt if provided under an employer-approved scheme that applies to all employees.
For individuals not covered by the above categories, the FBR permits an exemption of either 50% of the received gratuity or Rs 75,000, whichever is lower. However, certain conditions apply. The tax relief does not extend to gratuity payments received outside of Pakistan, amounts paid to non-resident employees, or to directors who are not regular employees of the paying company.
This Rs 1.65 billion in exemptions underscores the FBR’s intention to support retirement planning and the financial well-being of employees, particularly as they conclude their professional careers. It also reflects a broader strategy of providing tax relief to promote social welfare through income protection.
The FBR’s decision to continue these exemptions on gratuity payments reaffirms its commitment to a fair taxation system while acknowledging the significance of post-retirement financial security for Pakistan’s workforce.
