Retirement benefits schemes

on account
of gratuity, provident fund and n e .
payments
in nent benefits generally include retire voluntarily
and are offered paymentslon
2s, employees are encouraged
to under
ne Golden handshake schemes.
Gratuity
fund is fully exempt. Gratuity received f
Gratuityreceived from approved gratuity
is exempt upto the following limits:
from
approved scheme and unapproved fund or scheme
Tax treatment
Gratuity type
Government employees Fully exempt
Gratuity Fund approved by the Fully exempt
Commissioner Inland Revenue
Gratuity Scheme approved by the Board Exempt upto Rs. 300,000
Unapproved gratuity scheme/fund Exempt upto 75,000 or 50% of the amount
receivable whichever is lower

Exemption in respect of unapproved gratuity shall not apply in the following cases:
) Any payment not received in Pakistan
(i) Any payment received by a director of a company who is not a regular employee of
such company
(ii) Any payment received by a non-resident
iv) Any gratuity received by an employee who has already received any gratuity from the
same or other employer.

Pension

Pension received by the citizen of Pakistan from the former

tax except where the person continues to work for the same
employer shall be exempt rom
employer or an associate
employer. Where a person receives more than one pension, the exemption shall Or apply
higher of such pensions.

For a person60 years of age, all such

over ve
pensions are exempt irrespective of the abo
mentioned conditions (Circular 28 of 1991)
Pension received in respect of services rendered by a member of Armed Forces of Paki
istan
or Federal Government or a Provincial Government is
exempt from tax.
Provident fund

Provident fund is categorized into the following three categories:

Government provident fund
 Chapter 5: Salary

(i) Recognized provident fund

(ii) Unrecognized provident fund
Provisions regarding
accumulated taxability in respect of emplover/emplovee contribution, d
balance thereon is as interest creui
follows
Event Government PF Recognized PF Unrecognized PE
Employee's No treatment No treatment
Contribution No treatment

Employer's Exempt Limit

Contribution
on
employer's yearly No treatment
contribution is Rs. 150,000
or 1/10th of (basic salary +
dearness allowance)
whichever is lower
Interest Exempt Yearly interest is exempt No treatment
credited during higher of:
the year
16% interest rate on
accumulated balance;
or

1/3rd of (basics salary +

dearness allowance).

Payment of Exempt Exempt Only the employer's

accumulated contribution and interest on
balances accumulated balance is
taxable in the year of
receipt.
Salary for the purpose of provident furnd includes basic salary + dearness allowance. All
other allowances are excluded.
There is no treatment of employee contribution as the amount is paid from salary and the
same is already included in his salary.