Gratuity - upto 10 lakh - is it taxfree ?
prashant1314
(Querist) 03 September 2011
This query is : Resolved
Dear Seniors,
Can you please enlighten me by explaining " If the employee is eligible to get Gratuity 10 lakh " is it Income Tax Free Amount?
Thanks in advance.
Shailesh Kr. Shah
(Expert) 03 September 2011
Yes,
As per notification of The CBDT that ten lakh rupees as the maximum amount of gratuity entitled to exemption under sub-clause (iii) of clause (10) of section 10 of the Income Tax Act 1961.
The notification will be applicable to employees who retire, or become incapacitated before retirement, or expire, or whose services are terminated, on or after the 24th May 2010.
prabhakar singh
(Expert) 03 September 2011
employee of which category???
Govt. employee?/Employees covered under the Payment of Gratuity Act, 1972 ??/Other employee???
However i am providing you a general answer to your question.
Gratuity can be received by the employee at the time of his retirement or by his legal heir in the event of death of the employee. Gratuity received by an employee on his retirement is taxable under the head "Salary" and gratuity received by the legal heir is taxable under the head" Income from Other Source.
In both the above situations gratuity upto a specified limit is exempt under the provisions of sec.10(10) of the Income Tax Act, 1961.
For the purpose of exemption of gratuity under sec.10(10) the employees are divided under three categories:
Govt. employees - In the case of govt. employees the entire amount of death-cum-retirement gratuity is exempt from tax and nothing is therefore taxable under the head Salaries.
Employees covered under the Payment of Gratuity Act, 1972 - The employees covered under the Gratuity Act who receive gratuity have been given exemption which is the minimum of the following amounts. Gratuity received in excess of the minimum of the amounts mentioned below is included in the gross salary for the purposes of taxation.
The amount of gratuity actually received.
Fifteen days' salary (7 days in the case of seasonal employment) for every completed year of service provided the employment is more than six months.
Other employees - In the case of other employees the gratuity received or receivable on his retirement or on his becoming incapacited prior to such retirement or termination of his employment or any gratuity received by his heirs is exempt to the extent of the minimum of the following amounts. The amount received in excess of the sums mentioned below is included in the gross salary of the employee for the purposes of taxation.
Actual amount of gratuity received.
Half month's average salary for every completed year of service. (Average salary means the average of the salary drawn by the employee for 10 months immediately preceding the month in which he retires)
Now do the home work.
prabhakar singh
(Expert) 03 September 2011
your home work ts done by Mr. shah.
prashant1314
(Querist) 03 September 2011
Dear Seniors,
Thanks a lot for your wonderful reply.
Guest
(Expert) 03 September 2011
I appreciate elaborative answer of Shri Prabhakar Singh ji.
Sankaranarayanan
(Expert) 03 September 2011
yes mr prabhakar singh explained well.
K.S.Srinivas
(Expert) 03 September 2011
Expert Prabhakar Singh's answer is crisp and clear.
