Employers in Pakistan who establish a gratuity fund for their employees must obtain formal approval from the Federal Board of Revenue (FBR) to ensure tax recognition and compliance. The procedure and documentation requirements are clearly outlined in Rule 115 of the Income Tax Rules, 2002 (amended up to November 24, 2023).
Below is a complete, easy-to-follow guide on how to apply for FBR approval of a gratuity fund.
What is an approved gratuity fund?
An approved gratuity fund is a trust established by an employer for providing gratuity benefits to employees, which has been officially approved by the FBR. Approval ensures tax exemptions and compliance under the Income Tax Ordinance, 2001.
Legal Basis: Rule 115 of Income Tax Rules, 2002
Rule 115 prescribes the format, content, and verification required for submitting an application for approval of a gratuity fund to FBR.
Step-by-Step Process to Apply for FBR Approval
Step 1: Prepare the formal application
The employer must submit a written application to FBR containing the following mandatory information:
1. Employer’s name and address
– Principal place of business
2. Employee details
– Classes and number of employees entitled to fund benefits
– Whether employees are based in Pakistan or abroad
3. Retirement age
– Age prescribed in the fund regulations
4. Minimum service requirement
– Minimum length of service required to qualify for gratuity
5. Accounts location
– Place where fund accounts are maintained or will be maintained
6. Investment details (if fund already exists)
– Complete details of fund investments
Step 2: Attach mandatory trustee verification
Every application must include a verification declaration by trustees, in the prescribed format:
“We / I, the trustees of the above named fund, do declare that what is stated in the application is true to the best of our/my information and belief and that the documents attached herewith are original or true copies thereof.”
This verification is legally essential and validates the authenticity of the submission.
Step 3: Submit to relevant FBR office
The completed application is submitted to the Commissioner Inland Revenue (CIR) or the designated FBR office handling exemptions and approvals.
Documents Checklist for FBR Gratuity Fund Approval
• Formal application letter
• Trust deed of gratuity fund
• Fund rules and regulations
• Trustee verification declaration
• CNICs of trustees
• NTN of employer
• Bank account details of fund
• Investment statements (if applicable)
Why is FBR approval important?
FBR approval ensures:
• Tax-exempt status of gratuity fund income
• Tax deductibility of employer contributions
• Legal compliance with income tax laws
• Enhanced credibility and transparency
Common Mistakes to Avoid
• Incomplete employee details
• Missing trustee verification
• Unclear fund regulations
• Non-disclosure of existing investments
Frequently Asked Questions (FAQs)
Is FBR approval mandatory for gratuity funds?
Yes. Without FBR approval, the fund may lose tax benefits.
Can an existing gratuity fund apply later for approval?
Yes. Existing funds can apply, but must submit complete investment details.
How long does FBR approval take?
Typically, 30 to 90 days, depending on document completeness and case complexity.
Legal Takeaway
To obtain FBR approval of a gratuity fund, employers must strictly follow Rule 115 of the Income Tax Rules, 2002, submit a complete application, and attach proper trustee verification. Accurate documentation ensures faster processing and sustained tax benefits.
Disclaimer:
This article is for informational purposes only and does not constitute legal or tax advice. For case-specific guidance, consult a qualified tax advisor or legal professional.