Gratuity Calculator
Gross gratuity, the tax-exempt portion, and what the taxable remainder actually costs you
Frequently Asked Questions
Gratuity — a lump-sum payment made to an employee on leaving a job, typically after a minimum service period — carries different tax treatment in Pakistan depending on which of three scheme types applies: government employment, an FBR-approved gratuity fund, or an unapproved/no-scheme arrangement.
Why the exemption depends entirely on scheme type
Government employees typically have their entire gratuity exempt from tax under applicable service rules — the full amount is tax-free. Gratuity paid through an FBR-approved gratuity fund (common in larger private-sector employers) is exempt up to a set ceiling, with any amount above that ceiling taxed as regular income. Gratuity paid under an unapproved scheme, or with no formal scheme at all — common at smaller private employers — gets a much smaller exemption: only the lower of 50% of the gratuity amount or a fixed rupee cap is tax-free, with the rest added to taxable income for that year.
A worked example
Two employees receiving an identical gratuity payout on leaving their jobs can end up with very different after-tax amounts purely because one worked for an employer with an FBR-approved fund and the other didn't — the exemption mechanics are structurally different, not just a different percentage of the same formula.
How this connects to your other income
Gratuity you receive is added to your income for the tax year in which you receive it (net of whatever exemption applies), which affects which Income Tax slab bracket the rest of your income for that year falls into — a large gratuity payout in the same year as significant salary income can push your combined taxable income into a higher bracket than either component would alone. If your gratuity is paid alongside your final salary and any accrued leave encashment when leaving a job, run the total package through the Salary Calculator too, since these are often taxed together in your final payslip from that employer.
Common mistakes
Employees frequently assume "gratuity" is automatically fully tax-exempt because they've heard that's true for government employees, without checking which of the three scheme types their own employer actually operates — the exemption gap between an approved fund and an unapproved arrangement is large enough that this assumption can lead to a real, unpleasant tax surprise.