Tax Implications of Gratuity in Pakistan 2025

Understanding the tax implications of your gratuity payment can help you plan better and potentially save thousands of rupees. Here's what you need to know about gratuity taxation in Pakistan.

Is Gratuity Taxable?

Yes, gratuity is taxable in Pakistan, but there are significant exemptions available under the Income Tax Ordinance, 2001. The tax treatment depends on whether the gratuity comes from an approved or unapproved fund.

Approved vs Unapproved Funds

Approved Gratuity Funds

These are funds approved by the Commissioner of Income Tax. Benefits from approved funds enjoy higher tax exemption limits.

• Tax exemption limits are periodically updated by FBR
• Generally offer more favorable tax treatment
• Excess amounts are taxed as per applicable income tax slabs

Unapproved Gratuity Funds

Gratuity from unapproved funds has lower exemption limits. Any amount exceeding the exemption is added to your taxable income for that year.

Tax Exemption Limits 2025

The Federal Board of Revenue (FBR) sets exemption limits that are updated periodically. As of 2025, these limits vary based on:

• Length of service
• Whether the fund is approved or unapproved
• Last drawn salary

How to Minimize Tax on Gratuity

• Ensure your employer contributes to an approved gratuity fund
• Keep proper documentation of your service period and salary records
• Consult with a tax advisor before retirement to plan your tax liability
• Consider timing of gratuity receipt if you have control over it

Important Disclaimer

Tax laws and exemption limits change frequently. This article provides general guidance based on current laws. For specific advice related to your situation, please consult a qualified tax professional or chartered accountant.