FBR grants tax exemption of Rs1.1 billion on gratuity payments

FBR grants tax exemption of Rs1.1 billion on gratuity payments

Islamabad – The Federal Board of Revenue (FBR) has granted a substantial exemption of Rs1.11 billion on gratuity payments during the tax year 2020.

This exemption, made under clause 13 of Part 1 of the Second Schedule of the Income Tax Ordinance, 2001, comes with no sunset clause.

The FBR clarified that the exemption applies to any income representing payments received as gratuity by government employees or from any gratuity fund approved by the commissioner in accordance with the rules outlined in Part III of the Sixth Schedule of the Income Tax Ordinance, 2001.

Notably, this exemption is not limited by time and provides a sustained benefit to eligible government employees. The FBR gathered data for calculating this exemption from both Accountants Generals and gratuity funds registered with the FBR.

The clause under which the exemption is granted encompasses two main components – gratuity payments received by government employees and those received by private sector employees.

Under Component 1, there are a total of 451 gratuity funds registered with the FBR. To calculate the tax expenditure for this component, a random sample of 31 cases was selected, and their audited accounts were meticulously inspected. The average payments made by these gratuity funds were then normalized, multiplied by 451, and the tax expenditure was calculated at a rate of 10 percent. The resulting tax expenditure for this component is a substantial Rs758,486,929.

In Component 2, the total gratuity payments in the government sector, including both civil and military, amounted to Rs3,535,201,218. The tax expenditure for this component was similarly calculated at a rate of 10 percent.

This move by the FBR is seen as a positive step towards recognizing the contributions of government employees and providing them with financial relief during the specified tax year. The exemption is expected to ease the financial burden on individuals who have dedicated their careers to public service.

The decision to grant this exemption without a sunset clause indicates the government’s commitment to supporting its workforce, ensuring stability, and fostering goodwill among its employees. As the tax year concludes, this announcement is likely to be welcomed by government employees across the country, contributing to enhanced job satisfaction and financial security.