Post # 25: Receipt of More than One Gratuity

Q. What if an employee receives more than one gratutity. Will it be exempt or taxable?

A. Rules relating to exemption of gratuity are stated as follows: 

(i) Gratuity receivable by employee of the Govt, local Govt, statutory body or corporation formed by any law is fully exempt if given in accordance with rules & conditions of employee's service.

(ii) Gratuity receivable from approved gratuity fund is fully exempt,

(iii) Gratuity receivable  from approved gratuity scheme is exempt upto Rs. 200,000,

(iv) In any other situation (Unapproved Gratuity Fund, Unapproved Gratuity Scheme etc), gratuity receivable upto 50% of the amount receivable or Rs. 75,000/- which ever is less is exempt.

But this exemption under the fourth category is not available to the following:

- person recieving gratuity outside Pakistan

- gratuity recieved from a company by a director who is not a regular employee of the company

- gratuity recieved by non-resident employee

- gratuity received by an employee who already has received gratuity from the same or any other employer.

Note that the above exclusions have been made only from fourth category and not from all categories of the gratuity.

More than one gratuity:

- Govt employee:  Ordinarily, it is not usual for an employee to recieve more than one gratuity from Govt, but, theoratically speaking,  even if a Govt employee receives more than one gratuity, such gratuities will be fully exmept if given as per the terms of employement. But, if the second gratuity is given not as per rules just as a reward for excellant performance in the past, it will be fully chargeable.

- Approved Gratutiy Fund:  Here too ordinarily, it is not usual for an employee to recieve more than one gratuity from Approved Gratuty Fund, but, theoratically speaking,  even if a a person does receive more than one gratuity, such gratuities will be fully exmept. But, if the second gratuity is recieved from the employer and not from the Approved Gratuity Fund as a reward for excellant performance in the past, it will be fully chargeable.

- Approved Gratutiy Scheme:  Gratutiy is exempt upto Rs. 200,000 if received from approved gratuity scheme, regardless of wether it is recieved once or twice provided it does not exceed the above limit. In case, the first or the second gratuity exceeds the aforesaid amount, the excess shall be charged to tax. 

- Others (Unapproved Gratutiy Fund/Scheme etc):  Here two situations may occur: (a) If a person has already recieved a gratutiy under the first three categories stated above and is recieving gratuity again under this fourth category, the second gratuity shall be fully chargeable to tax. (b) If a person has already received gratuty under this fourth categore, and is receiving it again under this same categorey, the second shall be fully taxable.