Karachi, April 13, 2025 – In a significant move aimed at easing the financial burden on retiring employees, the Federal Board of Revenue (FBR) has extended income tax exemptions amounting to Rs1.65 billion on gratuity payments made to individuals during the tax year.
According to the FBR’s official Income Tax Expenditure Report 2024, the exemptions were granted under Clause 13, Part I of the Second Schedule of the Income Tax Ordinance, 2001. The provision allows full or partial tax exemption on income received in the form of gratuity, subject to specific conditions and categories.
The FBR clarified that this tax relief applies to a variety of recipients, including government employees, staff of statutory bodies, and individuals employed in the private sector. For government workers and employees of local governments, corporations, or statutory bodies, the tax-exempt gratuity amount must align with the rules and regulations governing their service terms.
In the case of private sector employees, any gratuity amount received from a fund approved by the Commissioner—under the guidelines in Part III of the Sixth Schedule—is eligible for exemption. Furthermore, gratuity payments of up to Rs300,000 are also exempt if made under an employer-approved scheme that is applicable to all employees.
For individuals who do not fall under the aforementioned categories, the FBR allows an exemption of either 50% of the gratuity amount received or Rs75,000—whichever is lower. However, certain exclusions apply. The tax relief does not cover gratuity payments received outside Pakistan, amounts paid to non-resident employees, or to directors who are not regular employees of the paying company.
This Rs1.65 billion exemption indicates the FBR’s intention to support retirement planning and financial stability for employees, especially those nearing the end of their professional careers. It also reflects a broader tax relief strategy aimed at ensuring social welfare through income protection.
The FBR’s decision to maintain these gratuity-based exemptions reinforces its commitment to fair taxation while recognizing the importance of post-retirement financial security for Pakistan’s workforce.