Tax treatment of gratuity :- For the purpose of exemption of gratuity under sec.10 (10) of the income
Tax Act, 1961 the employees are divided under three categories
:
:
1.
Government Employees:-
Any death cum retirement
gratuity received by Central and State Govt. employees, Defense employees
and employees in Local authority shall be exempt.
2.
Employees covered by The
Payment of Gratuity Act, 1972:-
Any gratuity received by persons
covered under the Payment of Gratuity Act, 1972 shall be exempt subject to
following limits:-
o
For every completed year of
service or part thereof, gratuity shall be paid at the rate of fifteen days wages
based on the rate of wages last drawn by the concerned employee.
o
The amount of gratuity as
calculated above shall not exceed Rs. 10,00,000/-
Note that Gratuity of employee covered under
this, shall be calculated as per the below formula:
Gratuity = Last drawn salary x 15/26 x No. of
years of service
Your last drawn salary will comprise your
basic + DA. For computation of gratuity, your service period will be rounded
off to the nearest full year.
3.
Other Employees:-
In case of any other
employee, gratuity received shall be exempt, subject to the following
exemptions
o
Exemption shall be limited
to half month salary (based on last 10 months average) for each completed year
of service or Rs. 10 Lakhs whichever is less.
Note that Gratuity for employee under this, shall
be calculated as per the below formula
Gratuity = Last drawn salary x ½ x No. of
years of service
Your last drawn salary will comprise your
basic + DA+ commission on sales on turnover basis
Note:- Where the gratuity was received in any
one or more earlier previous years also and any exemption was allowed for the
same, then the exemption to be allowed during the year gets reduced to the
extent of exemption already allowed, the overall limit being Rs. 10 Lakhs.
As per Board’s letter F.No. 194/6/73-IT(A-1)
Dated 19.06.73 exemption in respect of gratuity is permissible even in cases of
termination of employment due to resignation. The taxable portion of gratuity
will qualify for relief u/s 89(1).
Gratuity Received after employee’s death:-
Gratuity payment to a widow or other legal
heirs of any employee who dies in active service shall be exempt from income
tax subject to provisions mentioned above.
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