Is a benevolent fund grant or superannuation payment received by the family after a death taxable?

What does the law say?

Three clauses of Part I of the Second Schedule to the Income Tax Ordinance, 2001 cover lump sums that a family commonly receives after an employee dies.

Clause (24) exempts “Any benevolent grant paid from the Benevolent Fund to the employees or members of their families in accordance with the provisions of the Central Employee Benevolent Fund and Group Insurance Act, 1969.” The exemption is tied to that Act. A grant from some other benevolent scheme is not described by the clause.

Clause (25) exempts “Any payment from an approved superannuation fund made on the death of a beneficiary or in lieu of or in commutation of any annuity, or by way of refund of contribution on the death of a beneficiary”. An “approved superannuation fund” is defined in section 2(4) as a fund approved by the Commissioner under Part II of the Sixth Schedule.

Clause (13) exempts gratuity or commutation of pension received “by an employee on his retirement or, in the event of his death, by his heirs”, up to limits set by four sub-clauses.

How much gratuity can heirs receive tax free?

The clause (13) limit depends on who the employer was and how the gratuity is paid.

Sub-clause	Employee	Exempt amount
(i)	Government, Local Government, statutory body or corporation established by law	The amount receivable under the rules and conditions of service
(ii)	Member of a gratuity fund approved by the Commissioner under Part III of the Sixth Schedule	Any amount receivable from that fund
(iii)	Any other employee, under a scheme for all employees approved by the Board	Up to three hundred thousand rupees
(iv)	Anyone not covered by (i) to (iii)	Fifty per cent of the amount or seventy-five thousand rupees, whichever is less

The proviso after sub-clause (iv) says that nothing in “this sub-clause” applies to a payment not received in Pakistan, a payment by a company to a director who is not a regular employee, a payment to a non-resident employee, or a gratuity to an employee who has already received a gratuity from the same or any other employer.

What is an approved superannuation fund?

Rule 2 of Part II of the Sixth Schedule sets the conditions. The fund must be under an irrevocable trust connected with a trade or undertaking in Pakistan, the employer must contribute, benefits must be payable only in Pakistan, and its sole purpose must be annuities for employees on retirement or incapacity, “or for widows, children or dependants of persons who are or have been such employees on the death of these persons.”

Rule 5 shows the other side. Where employer contributions are repaid to an employee “during his life-time in circumstances other than those referred to in clause (25)”, the trustees deduct tax at the rate applicable to the year of withdrawal. A refund of contributions on death falls inside clause (25) and is exempt.

Worked example (illustrative figures)

Case 1, federal employee. Tariq, an Upper Division Clerk in Islamabad, dies in service. His widow receives a benevolent grant of Rs. 600,000 under the 1969 Act and gratuity of Rs. 1,400,000 under his service rules.

1. Benevolent grant: exempt under clause (24), Rs. 0 taxable.
2. Gratuity: sub-clause (13)(i) exempts the amount receivable under the service rules, Rs. 0 taxable.
3. Total received: Rs. 2,000,000, all within the exemptions.

Case 2, private mill. Rafiq worked at a spinning mill in Faisalabad. The mill pays his heirs a gratuity of Rs. 450,000 under a scheme for all employees approved by the Board.

1. Exempt under sub-clause (13)(iii): Rs. 300,000.
2. Not covered by clause (13): Rs. 450,000 - Rs. 300,000 = Rs. 150,000.

Case 3, no approved scheme. A small trading firm in Hyderabad pays Rs. 200,000 gratuity to the heirs of a salesman.

1. Fifty per cent: 50% x Rs. 200,000 = Rs. 100,000.
2. The lesser of Rs. 100,000 and Rs. 75,000 is Rs. 75,000, which is exempt under sub-clause (13)(iv).
3. Not covered by clause (13): Rs. 200,000 - Rs. 75,000 = Rs. 125,000.

Clause (13) says how much is exempt. It does not itself say how the balance received by heirs is charged, and this page does not guess.

What if the payment is group insurance?

Clause (24) refers to the Central Employee Benevolent Fund and Group Insurance Act, 1969, but its words exempt only a “benevolent grant paid from the Benevolent Fund”. Part I of the Second Schedule contains no separate clause for group insurance under a private employer’s policy.

Section 7G, which from tax year 2026 taxes certain life insurance and family takaful payouts to individuals, does not reach a death claim. Section 7G(3) switches it off where the payout or benefit is made on account of the death or disability of the insured, or after four years from the policy’s issue. This page found no other provision in the Ordinance that deals with a death claim paid to a family.

Common mistakes

• Assuming every benevolent grant is covered. Clause (24) names the 1969 Central Act only. Grants from other schemes need their own basis in the law.
• Treating all gratuity to heirs as exempt. Only government-type employers and approved gratuity funds give a full exemption. Other employers are capped at Rs. 300,000 or Rs. 75,000.
• Confusing a superannuation fund with a provident fund. Clause (25) applies to approved superannuation funds. Provident fund balances are dealt with by clauses (22) and (23).

What to check in the official text

Read clauses (13), (24) and (25) of Part I of the Second Schedule, section 2(4), rules 2 and 5 of Part II of the Sixth Schedule and section 7G. The Central Employee Benevolent Fund and Group Insurance Act, 1969 and any provincial benevolent fund laws are not part of this corpus, so eligibility for a grant and its amount must be confirmed from those laws or the paying office.