Labour Law & Hr Consultant
+1 Other

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Is Gratuity limit of RS.200K (100K) is for payment of Gratuity or For income tax purpose?
Secondly,if as per formula calculation the amount exceeds RS.200K(100K), what's the amount to be paid? If the limit prevails over formula, then formula is ineffective in practice?

From India, Mumbai
Whatever the amount of gratuity payable to an employee on the termination of his employment subject to the ceiling prescribed u/s 4(3) of the Payment of Gratuity,1972 ( Rs.20lakh w.e.f 29-03-2018) is completely exempt from Income Tax. Normally, every employer paying gratuity strictly according to the statutory formula would restrict it to the ceiling when it exceeds it. If he pays the actual out of magnanimity, the amount exceeding 20 lakh would be taxed. Similar is the situation if there is better terms of gratuity in the contract of employment/Rules of Gratuity of such establishment.
From India, Salem
Thank you Umakanthan sir for your answer.
Here I have certain more clarifications as below;
- If an employee is eligible to get 22 lacs as per the calculation of gratuity, whether he is paid 22 lacs by the employer or only 20 lacs is paid ?
- If the employee is paid 22 lacs, is Tax calculated above only 2 lacs or entire 22 lacs ?
Pl clarify me.

From India, Mumbai
Dear Saisri,
Whether paid as per the organization's own rule of gratuity or at the discretion of the employer, the gratuity amount exceeding the ceiling under the Act i.e., Rs.20 lakh and in your case the extra amount of Rs 2 lakh alone is taxable.

From India, Salem
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