I am working in a US-based MNC in Hyderabad, and due to a business change, the company is planning to close their India center. The company was withholding 4.81% of our basic as Gratuity. Since the company is closing its India center, they are giving gratuity based on a calculation of 4.81% of the basic salary multiplied by the number of months worked in the company, even if the employee has not completed 5 years of service with the company.
My questions are:
1. Is the Gratuity Act of 1972 stating anywhere that an employer can't pay gratuity for less than 5 years of service?
2. Are the income tax rules stating anywhere that one is supposed to pay tax on gratuity if the employer provides it for less than 5 years of service?
In our case, are we supposed to pay tax on it or not?
Regards,
Sanjay
From United States, Newbury Park
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My questions are:
1. Is the Gratuity Act of 1972 stating anywhere that an employer can't pay gratuity for less than 5 years of service?
2. Are the income tax rules stating anywhere that one is supposed to pay tax on gratuity if the employer provides it for less than 5 years of service?
In our case, are we supposed to pay tax on it or not?
Regards,
Sanjay
From United States, Newbury Park
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10 views no reply, dear friends plz reply. Our Employer wants to pay gratuity without tax but payroll agency wants to deduct tax. Regards
From United States, Newbury Park
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From United States, Newbury Park
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Dear Sanjay,
The Gratuity Act does not prohibit any employer from paying gratuity even before 5 years. All acts are designed to establish a bare minimum, and any employer can extend the facility for the benefit of employees.
Gratuity is taxable whether paid after five years or before five years, but it is not taxable upon superannuation.
Thanks,
J. S. Malik
From India, Delhi
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174The Gratuity Act does not prohibit any employer from paying gratuity even before 5 years. All acts are designed to establish a bare minimum, and any employer can extend the facility for the benefit of employees.
Gratuity is taxable whether paid after five years or before five years, but it is not taxable upon superannuation.
Thanks,
J. S. Malik
From India, Delhi
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dear sorry for earlier thread ,gratuity is not taxable if paid as per gratuity act. in your case it will be taxable. tks j s malik
From India, Delhi
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From India, Delhi
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Dear sir,
It is not clear to us why our case is not under the gratuity act. Could it be due to a term of less than five years? I checked with my HR department, and they confirmed that our company falls under the gratuity act. So, why is the payment not covered by the act?
Thank you.
From United States, Newbury Park
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It is not clear to us why our case is not under the gratuity act. Could it be due to a term of less than five years? I checked with my HR department, and they confirmed that our company falls under the gratuity act. So, why is the payment not covered by the act?
Thank you.
From United States, Newbury Park
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1. Yes, the company can pay gratuity before completion of 5 years of service by any or all of its employees.
2. However, I am afraid the entire amount paid as gratuity before 5 years will be taxable.
Regards,
Raj
From India, Mumbai
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2. However, I am afraid the entire amount paid as gratuity before 5 years will be taxable.
Regards,
Raj
From India, Mumbai
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dear you are paying before five years whereas gratuity act says applicablity after five years ,you can pay but it will be taxable. tks j s malik
From India, Delhi
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From India, Delhi
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Gratuity paid in excess of Rs. 3,50,000 is taxable. Up to this amount, it is not taxable as per the law. But in your case, since you are paying the same before a 5-year duration, it would be taxable in the hands of the employee.
From United Kingdom
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From United Kingdom
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Dear All,
Gratuity paid up to Rs. 3,50,000 in a lifetime is exempted from tax. Anything above that amount is taxable. There is no question of whether the amount of 3.50 lacs he is getting in his first employment or others. At the time of joining, take a declaration from the employee about the gratuity amount he has received from his previous employer. It will be his responsibility to declare the authentic information.
If he has received 3.50 lacs in the previous employment and has obtained an exemption on it, charge tax on the gratuity paid by you. Otherwise, provide him with the benefit in your employment.
Nitin Nikam Advocate
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Gratuity paid up to Rs. 3,50,000 in a lifetime is exempted from tax. Anything above that amount is taxable. There is no question of whether the amount of 3.50 lacs he is getting in his first employment or others. At the time of joining, take a declaration from the employee about the gratuity amount he has received from his previous employer. It will be his responsibility to declare the authentic information.
If he has received 3.50 lacs in the previous employment and has obtained an exemption on it, charge tax on the gratuity paid by you. Otherwise, provide him with the benefit in your employment.
Nitin Nikam Advocate
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Actually, as per the CTC concept followed in most organizations, contribution towards gratuity is also included in the computation of the CTC. However, if an employee leaves the company before completing 5 years of service and the deduction is specified in the CTC, the company will pay the amount to the employee as ex gratia, which will be taxable.
Seniors, please suggest if I am wrong.
Regards,
Mradul Bhatnagar
From India, Bhopal
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Seniors, please suggest if I am wrong.
Regards,
Mradul Bhatnagar
From India, Bhopal
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