Is GP Fund money received at retirement taxable, including the interest?

What does the law say?

Clause (22) of Part I of the Second Schedule to the Income Tax Ordinance, 2001 is one line long:

“Any payment from a provident fund to which the Provident Funds Act, 1925 (XIX of 1925) applies.”

Section 53 gives Second Schedule exemptions effect “subject to any conditions and to the extent specified therein”. Clause (22) states no rupee limit, no condition about age or length of service, and no split between what you subscribed and what the fund added. Its test is about the fund: is it a fund to which the 1925 Act applies?

Without the clause, the starting point would be section 12(2)(e)(iv). That provision counts as salary any amount received “from a provident or other fund”, except the part that repays contributions for which you were not entitled to a deduction. In other words, the profit and any employer share would be salary. Clause (22) takes a 1925 Act fund out of that charge.

How does it work in practice?

GP Fund is usually built from monthly subscriptions cut from a government servant’s pay, with profit credited each year. At retirement the final payment combines both.

• If the fund is under the 1925 Act: the whole final payment is exempt under clause (22). It is not added to your salary for the tax year in which it is paid.
• The fund’s own income: clause (57)(3)(i) separately exempts “Any income” of “a provident fund to which the Provident Funds Act, 1925 (XIX of 1925), applies”. That is the fund’s income, not yours, but it means the investment income is not taxed inside the fund either.
• The recognition rules do not apply: rule 15 of Part I of the Sixth Schedule says that Part “shall not apply to any provident fund to which the Provident Funds Act, 1925 (XIX of 1925) applies.” So the yearly limits on employer contributions and interest in rule 3 of that Part, which apply to recognised funds, are not the test for a 1925 Act fund.

Worked example (illustrative figures)

Tariq, a schoolteacher employed by the Federal Government in Islamabad, retires in tax year 2027 (1 July 2026 to 30 June 2027). His accounts office pays his GP Fund final payment. All amounts are invented.

Part of the payment	Amount
His own subscriptions over his service	Rs. 3,100,000
Profit credited by the fund	Rs. 1,700,000
Total paid	Rs. 4,800,000

1. Tariq confirms from his fund’s rules that the Provident Funds Act, 1925 applies to it.
2. Clause (22) exempts “Any payment” from that fund. Both the Rs. 3,100,000 and the Rs. 1,700,000 are part of the payment.
3. Amount added to his taxable income for tax year 2027: Rs. 0.

Contrast, same figures, fund not covered by the Act and not recognised. Section 12(2)(e)(iv) would leave out only the repayment of his own contributions for which he had no deduction, Rs. 3,100,000 on these figures. The Rs. 1,700,000 of profit would be salary for tax year 2027.

What if I take money out before retirement?

Clause (22) says “Any payment”, and nothing in its text limits it to the final payment at retirement. The Ordinance does not separately address advances or withdrawals from a 1925 Act fund during service, and this page does not go further than the wording of the clause.

What if the member dies and the family is paid?

The clause again turns on the fund, not on who receives the money. A payment from a 1925 Act fund to a nominee or family member is still a “payment from a provident fund” of that kind.

What if my employer is a corporation or autonomous body?

Some such bodies run provident funds recognised by the Commissioner rather than funds under the 1925 Act. For those, clause (23) and Part I of the Sixth Schedule apply instead, with the yearly rule 3 limits. The related page on recognised funds covers that route.

Common mistakes

• Assuming “government employee” is the test. Clause (22) names the Provident Funds Act, 1925, not a class of employer.
• Treating the profit as taxable salary. For a 1925 Act fund, clause (22) does not carve the profit out of “Any payment”.
• Applying the recognised-fund limits. Rule 15 of Part I of the Sixth Schedule keeps 1925 Act funds out of that Part.

What to check in the official text

Read clause (22), clause (23) and clause (57)(3) of Part I of the Second Schedule, section 12(2)(e)(iv), section 53, and rule 15 of Part I of the Sixth Schedule. The Provident Funds Act, 1925 and the GP Fund rules of your service are outside this corpus. Your accounts office or fund rules are where to confirm that the Act applies to your fund.