Karachi, January 8, 2024 – The Federal Board of Revenue (FBR) has announced a tax exemption for gratuity payments during the tax year 2024.
The FBR has updated the Income Tax Ordinance, 2001, to reflect this exemption, providing relief to employees receiving gratuity amounts.
According to the revised provisions, any income derived from gratuity or commutation of pension by an employee upon retirement or, in the unfortunate event of their death, received by their heirs, will be eligible for tax exemption. The exemption is subject to certain conditions and limits, ensuring a fair and standardized application across various employment sectors.
The updated ordinance outlines specific criteria for determining the exemption eligibility:
(i) For employees of the Government, Local Government, statutory bodies, or corporations established by existing laws, the exempted amount is determined based on the rules and conditions of the employee’s services.
(ii) Any amount received from a gratuity fund approved by the Commissioner, following the rules outlined in Part III of the Sixth Schedule, is eligible for exemption.
(iii) In the case of other employees, the exempted amount should not exceed three hundred thousand rupees and must be received under a scheme applicable to all employees of the employer. This scheme should be approved by the FBR for the purposes of this provision.
(iv) For employees not falling under the above categories, the exempted amount is capped at fifty percent of the total received or seventy-five thousand rupees, whichever is less.
However, the ordinance comes with certain exclusions. The exemption will not apply to payments received outside Pakistan, payments from a company to a non-employee director, payments received by non-resident individuals, and gratuity received by an employee who has already received gratuity from the same or any other employer.
This move by the FBR is expected to bring relief to a significant number of employees across various sectors, encouraging a positive impact on their financial well-being during retirement. By providing clarity on the exemption criteria, the FBR aims to streamline the process and ensure fair treatment for all eligible individuals.
Businesses and employees alike have welcomed this decision, as it aligns with efforts to enhance employee benefits and incentivize long-term service. The tax exemption on gratuity payments acknowledges the importance of recognizing an employee’s dedication and service to their respective organizations.
In conclusion, the FBR’s decision to grant tax exemption to gratuity payments in 2024 is a commendable step towards creating a more favorable environment for retiring employees. This move is expected to contribute positively to the overall job satisfaction and financial security of the workforce, thereby fostering a healthier and more motivated workforce in the country.
