Tax Is Applicable For Gratuity Amount ? - CiteHR
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Hopegovind
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Pkjain62
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Vidyadhar Bhat
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Hello,
As per my earlier threads, I have asked for my gratuity details.
https://www.citehr.com/511442-how-mu...et-salary.html
I have get clear understanding about gratuity calculations.
Now, I want to know, whether tax is applicable on my amount or not ?
Company can cut the tax from my amount.
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Dear Friend Gratuity is part of social security measure and no tax could be deducted from the gratuity payable to an employee Regards
Applicable only if the total payable amount is more than Rs 10 lakhs
Hi!

Please find below a detailed Note on the issue--

Tax treatment of gratuity :- For the purpose of exemption of gratuity under sec.10 (10) the employees are divided under three categories:

Any death cum retirement gratuity received by Central and State Govt. employees, Defense employees and employees in Local authority shall be exempt.

Any gratuity received by persons covered under the Payment of Gratuity Act, 1972shall be exempt subject to following limits:- 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.

The amount of gratuity as calculated above shall not exceed Rs. 10,00,000/-

In case of any other employee, gratuity received shall be exempt, subject to the following exemptions 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.

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.

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 payment to a widow or other legal heirs of any employee who dies in active service shall be exempt from income tax.

The ceiling of Rs. 10 lakh applies to the aggregate of gratuity received from one or more employers in the same or different years.

PK
Thanks PK for your detailed note.
One of the company is in practice of giving gratuity to those who have not completed 5 years also..Because, in CTC gratuity is also added.
My query is:
Will Gratuity received at the time of separation who has not completed 5 years taxable 100%? or should we apply provision applicable for employees not covered in gratuity act....threby up to 10 lacs it gets exempted subject to following calculations.
(copied from your above reply...In case of any other employee, gratuity received shall be exempt, subject to the following exemptions 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.)
Thanks,
-Raghu
Gratuity can be paid even if employee has not completed 5Y of service,(as Gratuity )as per provisions of Payment of Gratuity Act....
.
The tax treatment part has already been explained well by Mr. Jain, Mr. Govind.
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Kang
Paying gratuity even when someone not completed 5 years is a good gesture of the company and Gratuity Act does not prohibit that it makes mandatory only for those who completed 5 years of service and there is no separate provision in the gratuity act for such provision hence irrespective of that it is not taxable

Dear All,
As per Gratuity Act, Gratuity is payable only after 5 yrs service and payment made as per Gratuity Act will be fully exempted max. Rs. 10 L.
The payment made for less than 5 yrs service will not be exempted under Income Tax Act. As the payment is not done as per Gratuity Act. Hence will be taxable.
Thanks,
Vidyadhar Bhat
Income tax on gratuity

◾When gratuity is received during the course of service

When gratuity is received during the course of service, then, it does not matter whether the employee is a government employee or a private sector employee , gratuity is always taxable under the head “salaries



◾When gratuity is received in the event of retirement, superannuation or death

When gratuity is received in the event of retirement, death or superannuation then following cases are possible.



1.In case of Government employees ( covered under section 10(10)i) , Entire amount of gratuity is examples from tax. This means that government employees do not have to pay any tax on gratuity when received in case of death, Superannuation or retirement.

2.Private employees:

◾When private employees are covered under the payment of gratuity act 1972 then the amount of tax on gratuity is least of the following 3:

◾a) Statutory limit of Rs 10 lakhs

◾b) 15/26 * last drawn salary * number of completed years of service or thereof in excess of 6 months

◾c) Actual gratuity received

◾When private employees are not covered under the payment of gratuity act 1972 then the tax on gratuity is least of the following three:



◾Statutory limit of Rs 10 lakhs

◾15/30 * average salary * number of completed years of service

◾Actual gratuity received



Notes

1.Statutory limit applies to the gratuity received throughout the life of a person i.e. if an employee receives a gratuity in earlier year from his former employee and also receives another gratuity payment from another employer in a later year, then the statutory limit of Rs. 10 lakhs will be reduced by the amount of gratuity exempt from tax in any earlier year.



1.When gratuity is received by an employee from 2 employers in the same P.Y., then the aggregate amount of gratuity exempt from tax cannot exceed the prescribed limits.



1.The exemption for gratuity would still be applicable if gratuity is received by the widow, children or dependants of the deceased person.

Gratuity taxation policy is fair in our country and leaves surplus gratuity with employee or his heirs for his personal purposes.

Hope now position will be clear to you Mr. Raghu. Make sure to obtain an certificate for the amount paid to you as gratuity by your employer to claim exemption.
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