How To Compute The Income Tax On Gratuity

Hai,
I like to know about the following queries
1. how to calcultate the tax liability on gratuity received by an government employee
2. Leave salary is taxable or not in case of government as well as private employee
please reply the answers for the above questions to [Login to view]

Dear Selvan,
Gratuity liability of an government employee is no different from the gratuity liability of private sector employee.
Calculate your gratuity amount as follows
Your gratuity amount = (Last Drawn Basic Salary + Dearness Allowance) x 15/26 x no. of years of completed service
1. If you have completed 4.8 years but less than 5 years, it can be rounded off to 5 years.
2. For every year after 5 years of completion, .5 is rounded to one. For example 5.5 years is 6 years but 5.4 years is 5 years only.

Hi Reetu
Please find the answer of your query--
Tax Exemption:

• 15 days’ salary (7 days’ in case of employees of a seasonal establishment) based on salary last drawn for each year of service or part there of. (15 days’ salary*length of service).
• Rs. 350000/-
• Gratuity actually received.

Which ever is lower.
Explanation - 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.

THANKS AKHIL....
PLZ EXPLAIN THESE...
15 days’ salary*length of service STANDS FOR WHAT???????
N ALSO PLZ MAKE ME UNDERSTAND OF WITH CAP / WITHOUT CAP???????

Dear Ms.Ritu,
I assume people have not understood question. I thinking you wish to know how much IT is applicable to gratuity(And not how to calculate gratuity). If thats right than Please note that just like PF, there is no IT on gratuity too. Hope this may help you.