Understanding PF and Gratuity: Are They Taxable? Let's Discuss!

Is PF and gratuity taxable? Please help.

Provident Fund Tax Exemption

Under the Provident Fund scheme, it is notified that any payment made to an employee from a provident fund to which the Provident Fund Act, 1925 applies, or from any other provident fund set up by the central government and notified by it in this behalf, is exempt from tax.

Gratuity Taxability

The taxability of gratuity depends on the recipient:

* For government employees, there is no tax on the gratuity.
* For private sector employees, if they are covered under the Payment of Gratuity Act, 1972, then the gratuity is exempt from tax subject to a maximum of Rs 10 lakh or 15 days' salary for each completed year of service (or part thereof).

There has been a recent amendment in the EPF Act, where a person whose EPF contribution is less than 50,000/- and/or has less than five years of service is taxable under the Income Tax Act. The EPF Authority will recover TDS on the final payment of EPF amount to a member.

Please note that EPF Withdrawal Amount of Rs 50,000/- attracts TDS if EPF Membership is less than 5 years.

Gratuity Payment up to Rs 10 Lakhs is exempted under The Payment of Gratuity Act, 1972.