( budget - 2009 -10 ) has only allowed central govt. Employees for higher limit of tax exemption upto 10 lacs ; but psu employees has been debared from availing this benefit. Pl clarify this lacuna & any remedial action . Thanks
CPSU executives are eligible for enhanced gratuity upto maximum Rs. 10 lakhs with effect from 01.01.2007 as per DPE guidelines dtd 26.11.2008.However, as far as taxability is concerned it would be taxable beyond Rs.3.5 lakhs.This is because as per Section10(10)(ii) of Chapter Three of Income Tax Act,1961 gratuity payable to employees covered under Payment Of Gratuity Act,1972 is exempt from income tax subject to the provisions of subsection 2 and 3 of section 4.Subsection 2 gives the rate of calculation of gratuity and subsection 3 gives the maximum limit of payable gratuity as Rs.3.5 lakhs .Unless Subsection 3 of Section 4 the Payment Of Gratuity Act,1972 is amended and ceiling enhanced to Rs.10 lakhs the same position will continue.As far as Central Govt employees are concerned they are paid Death-cum-retirement Gratuity which is also enhanced to maximum of Rs.10 lakhs with effect from 01.01.2006 .It is governed by 10(10)(i) of Chapter Three of Income Tax Act,2009 .As per that section the total amount is exempt from Income Tax . However, the employees of those PSUs whose gratuity was enhanced to Rs.10 lakhs are representing before the concerned ministries to amend the Payment Of Gratuity Act,1972 enhancing the maximum limit of payable gratuity to Rs.10 lakhs under subsection 3 of section 4 so that income tax exemption upto Rs.10 lakhs becomes automatically applicable.
It appears that a proposal for enhancement of maximum gratuity payable under subsection(3) of Section 4 of Payment Of Gratuity Act,1972 to Rs.10 lakhs has been approved by the Ministry Of Labour,GOI.Opinion of all the State Govts was sought by the Ministry.It appears that most of the State Govts have either agreed or supported the proposal .Opinion of all CPSUs was also sought.The proposal in the form of a Bill is likely be placed before the winter session of Parliament.Whether, it will have retrospective effect or prospective effect is not clear.Earlier , amendments were prospective only.
As lok sabha & rajya sabha both have cleared the gratuity amend bill 2010 to amend sub section 2 & 3 of section 4 for raising eligibilty & exemption limit to 10 lakh.
But the laguage of bill says that "it shall come in to force on such date as the central govt may, by notification in the official gazzate appoint"
Hence as per language of bill it will not be effective retrospectively.
Pl clarify as you mentioned earlier that DPE by its circular dtd 26/11/2008 has raised the eligibilty limit to 10 lakh wef 01/01/2007 for PSU.
-- After notification (if it is dated eg 01/05/2010) whether PSU will pay the diff of gratuity to its retired employees.
---If it will be paid then there will be tax deduction or not.
I retired from the services of Food Corporation of India, a Central PSU. There are two patterns of pay scales in the said Food Corporation of India. One is Industrial Dearness Allowance (IDA) pattern and the other is Central Dearness Allowance (CDA) pattern. The FCI has allowed gratuity to its executives and category III, IV employees in IDA pay scales @Rs.10 lakh from 01/01/2007 to 23/05/2010 (from 24/05/2010, new gratuity ammendment act has come into force and it is applicable to all). However, the FCI refuges to pay gratuity @Rs.10 lakh to CDA pattern executives and category III, IV employees for the same period. Will some senior please explain me the criterial for this discremination? Can the FCI discreminate between IDA and CDA pattern employees when both sets of employees are governed by the same Payment of Gratuity Act, 1972? I retired on 30/06/2007. I was governed by CDA pay scales. I have been paid gratuity amounting to Rs.3.50 lakh. My fellow Managers in IDA pattern have been paid difference up to Rs.10 lakh after deduction of income tax beyond Rs.3.50 lakh. This benefit is denied to CDA based employees. Some senior may please guide me in the matter so that I can take up the matter with the concerned authorities or the court of law if necessary.
S. B. Agrawal of Pune
There is a very good news for executives and employees of central public enterprises who were governed by central dearness allowance pattern and retired between 01-01-2007 and 23-05-2010 who were clamouring for payment of gratuity over and above Rs.3.50 lakh at par with their IDA based counterparts. The news is - the Department of Public Enterprises has issued an Office Memorandum on 10th August 2009 to all central PSEs to treat promotion of their employees as appointment and give the CDA based employees an opportunity to switch over to IDA pattern from 01-01-1989 onwards. The aggrieved employees are requested to please take the matter with their concerned employer corporations for their switch over from CDA to IDA pattern from 01-01-1989 or a date later than that as is applicable in individual case. Once their pay pattern is changed, they would automatically become eligible for payment of gratuity over and above Rs.3.50 (upto Rs.10 lakhs) for the period between 01-01-2007 to 23-05-2010 subject to tax liability over and above Rs.3.50 lakh. They would also get arrears of pay and allowances under IDA pattern.
The DPE OM dated 10-08-2009 is available on the website of the DPE. If some one wants a pdf copy, one may please contact me at <firstname.lastname@example.org>. I will be glad to furnish him/her the same. The Food Corporation of India was hasitating to implement the aforesaid DPE OM. The FCI had written to the parent ministry that it was willing to implement the DPE directive for existing employees and not the retired/expired employees from a prospective date and not from 01-01-1989 with retrospective effect. The DPE has replied that the Food Corporation of India has no such option and it has to implement the guidelines from 01-01-1989 with retrospective effect. This also applies to other PSEs. Copy of DPE clarification is also available with me and I am willing to share it with all those interested.
Now the question remains in respect of those Central PSE employees who retired during the year 2006. They would get arrears of pay and allowances under IDA pattern but not the benefit of enhanced gratuity above Rs.3.50 lakh. I would suggest that these brethren may take up the matter in the court of law citing the Honourable Supreme Court of India decision in the 1982 / D. S. Nakara and Others Versus Union of India case (available on the internet).
Shyam Agrawal of Pune
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