MILINDSHENDE73 Started The Discussion:
Please help me. What is maximum limit amout to be paid as gratuity & will be exempted under Income tax? Kindly also provide any written document as support. Regards Milind Shende
Dear Madhu/ Milind,
Gratuity Act does not limit the maximum amount that a person can receive in the form of gratuity. Payment of Gratuity Act 1972 Sec. 4 (5).
It says that employer can cap his liability to a maximum of Rs. 3.5 lakh per employee but nothing in the law prohibits him to provide better benefit than the one mentioned.
Though the Income Tax Act says that as long as the Gratuity amount is not exceeding 8.33% of employees annual salary, its not taxable even if it crosses 3.5 lakh limit (Ref. Income Tax Act RR 98 to 111)
There are companies who pay gratuity without cap i.e. an employee can accumulate gratuity as long as he work, even if he crosses 3.5 lakh limit.
According to the recent amendment made to the payment of gratuity act, the maximum amount payable to an employee is Rs 3.5 lakh provided if he completes the continuous period of 5 years under the same employer. the provisions of income tax not applicable for Gratuity but if an employee deposits the said amount in any bank, the interest payable on gratuity amount is liable for income tax deduction.
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