Dear Friends,
Thanks for your reply. After discussing with one or two law firms, my company decided to pay it as tax-free. The law firm informed them that the company can pay gratuity for less than 5 years of service as per the Gratuity Act of 1972. (It's not explicitly stated in the Gratuity Act that gratuity will be taxable or tax-free.)
Income Tax Rule of 1962 states that if one receives gratuity, it will be tax-free up to a certain limit (not more than 3.5 lakhs, etc.) Under the Income Tax Act, it is not specified that one must complete 5 years to receive tax-free gratuity. Therefore, if the company is making any payments under the head of gratuity, it will be tax-free. However, the tax-free limit should not exceed the income tax rule.
If the company wishes to deduct tax, then they should categorize it as other earnings, not gratuity. The tax-free limit of 3.5 lakhs is applicable for a lifetime. If one has utilized 1 lakh of the tax-free limit, they can avail a maximum of 2.5 lakhs in the future, not another 3.5 lakhs.
From United States, Newbury Park
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Thanks for your reply. After discussing with one or two law firms, my company decided to pay it as tax-free. The law firm informed them that the company can pay gratuity for less than 5 years of service as per the Gratuity Act of 1972. (It's not explicitly stated in the Gratuity Act that gratuity will be taxable or tax-free.)
Income Tax Rule of 1962 states that if one receives gratuity, it will be tax-free up to a certain limit (not more than 3.5 lakhs, etc.) Under the Income Tax Act, it is not specified that one must complete 5 years to receive tax-free gratuity. Therefore, if the company is making any payments under the head of gratuity, it will be tax-free. However, the tax-free limit should not exceed the income tax rule.
If the company wishes to deduct tax, then they should categorize it as other earnings, not gratuity. The tax-free limit of 3.5 lakhs is applicable for a lifetime. If one has utilized 1 lakh of the tax-free limit, they can avail a maximum of 2.5 lakhs in the future, not another 3.5 lakhs.
From United States, Newbury Park
Acknowledge(0)Amend(0)
Dear Friends,
Thank you for your reply. After discussing with one or two law firms, my company has decided to pay gratuity as tax-free. The law firm informed them that the company can pay gratuity for service of less than 5 years as per the Gratuity Act of 1972. (It is not stated in the Gratuity Act whether gratuity will be taxable or tax-free).
The Income Tax Rule of 1962 states that if one receives gratuity, it will be tax-free up to a certain limit (not more than 3.5 lakh, etc.) under the Income Tax Act. It is not mentioned that one must complete 5 years to receive tax-free gratuity.
Therefore, if the company is making any payment under the head of gratuity, it will be tax-free. However, the tax-free limit should not exceed the income tax rule. If the company wishes to deduct tax, then they should categorize it as other earnings, not gratuity.
The tax-free limit of 3.5 lakh is applicable for a lifetime. So, if one has utilized an advantage of 1 lakh, then in the future, they can avail of a maximum of 2.5 lakh and not another 3.5 lakh.
Regards,
Sanjay
From United States, Newbury Park
Acknowledge(0)Amend(0)
Thank you for your reply. After discussing with one or two law firms, my company has decided to pay gratuity as tax-free. The law firm informed them that the company can pay gratuity for service of less than 5 years as per the Gratuity Act of 1972. (It is not stated in the Gratuity Act whether gratuity will be taxable or tax-free).
The Income Tax Rule of 1962 states that if one receives gratuity, it will be tax-free up to a certain limit (not more than 3.5 lakh, etc.) under the Income Tax Act. It is not mentioned that one must complete 5 years to receive tax-free gratuity.
Therefore, if the company is making any payment under the head of gratuity, it will be tax-free. However, the tax-free limit should not exceed the income tax rule. If the company wishes to deduct tax, then they should categorize it as other earnings, not gratuity.
The tax-free limit of 3.5 lakh is applicable for a lifetime. So, if one has utilized an advantage of 1 lakh, then in the future, they can avail of a maximum of 2.5 lakh and not another 3.5 lakh.
Regards,
Sanjay
From United States, Newbury Park
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