Gratuity Provision: Is TDS Applicable When We Make This Financial Move?

Please clarify.

If we make a provision for gratuity, is TDS applicable?

Gratuity is given after five years of continuous service; however, TDS is deducted every month based on his salary.

Thanks for the reply.

We are deducting the TDS on Salary. My query is if we make the provision for Gratuity without flowing out the money and only it is in the books of accounts. Please clarify.

Dear,

There is no earning and no payment is made to anyone. You are just making provisions only. When payment is not made, then TDS will not be deducted.

Thanks,
J. S. Malik

Dear,

Payment of Gratuity is taxable for any amount above Rs. 3.5 lakhs. As per the Gratuity Act, there is a ceiling for Tax exemption only up to a payment of Rs. 3.5 lakhs. Any amount paid above that is subject to tax liability.

Regards, Dilip Satpute

Can anybody explain why this gratuity should be paid by the employer and how it should be paid? For instance, if someone has been working at an organization for 5+ years and during the same period, the company incurs losses for 3 or 4 consecutive years, what is the procedure in such a situation?

Additionally, should the employee maintain any provisions for this gratuity?

Dear Shobha,

The gratuity gets accumulated in the records after the completion of 5 years of service. At the time of your retirement, the sum will be settled along with other monetary benefits by your employer.

Regards,
Saraswathi

Dear Vamsi,

As a precautionary measure, the gratuity provision can be deposited with LIC to avoid unforeseen situations like incurring losses, etc.

Regards,
Smuthu