Hello Sirs,
I have received gratuity from my previous employer (say x) recently. I have worked with my employer (x) for 4 years 9 months. My salary CTC in my previous employer (x) did not had gratuity as any component of CTC. I say this because my current employer (say y) is having gratuity as component of CTC.
My queries:
1. Is this gratuity receipt taxable?
Request you to please share your expert opinion backed by relevant citations / sections / examples. The reason I say is I have already done a lot of Google research and read forums. But I Still feel that at times some say its exempt some say not exempt some say exempt if under Payment of Gratuity Act etc.
From India, Bangalore
Gratuity is included by many in CTC as the employer are supposed to deposit some amount year on year in an account.
Gratuity becomes claimable by an employee only after s/he serves a minimum period of 5 years with the company (without any break)
To know more about Gratuity Act please read the topics and discussions found on side bar.
Gratuity that one receives is tax free upto 10 lacs Rs.
Any amount recieved as Gratuity post 10 lac is taxable.
So say for example you are now working with Y and serve them for say next 6 years,
the your gratuity will be calculated and given to you with your F&F. Calculation is-
15/26 * 6 * Last drawn salary
So say if by this calculation, you are to get 10.5 lacs (just an assumption to show you taxability)
so your 10 lacs gratuity will be fully paid and 50,000 would be added to your taxable income and tax is accordingly worked out, TDS deducted and thus amount is paid...
Hope this clears your doubt.
From India, Mumbai
377Gratuity becomes claimable by an employee only after s/he serves a minimum period of 5 years with the company (without any break)
To know more about Gratuity Act please read the topics and discussions found on side bar.
Gratuity that one receives is tax free upto 10 lacs Rs.
Any amount recieved as Gratuity post 10 lac is taxable.
So say for example you are now working with Y and serve them for say next 6 years,
the your gratuity will be calculated and given to you with your F&F. Calculation is-
15/26 * 6 * Last drawn salary
So say if by this calculation, you are to get 10.5 lacs (just an assumption to show you taxability)
so your 10 lacs gratuity will be fully paid and 50,000 would be added to your taxable income and tax is accordingly worked out, TDS deducted and thus amount is paid...
Hope this clears your doubt.
From India, Mumbai
Dear Sunandoghosh / Ankita,
There is another very important clause that "any gratuity received by persons covered under the Payment of Gratuity Act, 1972 shall be exempt from Income Tax under sec sec.10 (10) of the IT Act only if the employee gets gratuity only for every completed year of service or part thereof at the rate of fifteen days wages (based on the rate of wages last drawn)."
If the employer is paying more than the above calculated amount (Last drawn Basic * 15 days * No. of service in years / 26) , then the exceeded amount is taxable.
Exemption is available if the employee gets the gratuity as per above calculation (Last drawn Basic * 15 days * No. of service in years / 26) or Rs. 10 Lakhs whichever is less.
regards,
Kamal
From India, Pune
There is another very important clause that "any gratuity received by persons covered under the Payment of Gratuity Act, 1972 shall be exempt from Income Tax under sec sec.10 (10) of the IT Act only if the employee gets gratuity only for every completed year of service or part thereof at the rate of fifteen days wages (based on the rate of wages last drawn)."
If the employer is paying more than the above calculated amount (Last drawn Basic * 15 days * No. of service in years / 26) , then the exceeded amount is taxable.
Exemption is available if the employee gets the gratuity as per above calculation (Last drawn Basic * 15 days * No. of service in years / 26) or Rs. 10 Lakhs whichever is less.
regards,
Kamal
From India, Pune
First of all there is no concept of gratuity to be part of CTC, this practice is started by companies just to inflate CTC to show to the employee that they are giving more to him. The catch here is that it is never your money to claim unless you are eligible under the Gratuity Act. That said no tax is imposed for amounts under Rs. 10 lakhs under the Act, at the same time even the employer is not compelled to give Gratuity of more than Rs. 10 lakhs, if they are then its the employee who is benefiting and if they are not then the employee cannot complain. Ankita has given you the right advice in this matter and you should have no doubts what so ever henceforth.
Regards
From India, Chennai
Regards
From India, Chennai
Dear Mr .Z. N. HANSI
You need to understand Sec 10 (10) of the IT Act that "any gratuity received under the Payment of Gratuity Act, 1972 (39 of 1972 ), to the extent it does not exceed an amount calculated in accordance with the provisions of sub- sections (2) and (3) of section 43 of that Act." is exempted from income tax.
If the employer is paying more than as prescribed in the Payment of Gratuity Act, the exceeded amount is taxable.
Suppose basic+DA is 50,000 and total year of service is 20 years...then as per the Payment of Gratuity Act the calculated gratuity amount is Rs. 5,76,923.
In this case if the employer pay 7 lacs as gratuity then 7,00,000 - 5,76,923 = Rs. 1,23, 077 will be considered as salary and is taxable.
Gratuity received in excess of the minimum of the amounts as prescribed in the payment of Gratuity Act will be included in the gross salary for the purposes of taxation.
From India, Pune
You need to understand Sec 10 (10) of the IT Act that "any gratuity received under the Payment of Gratuity Act, 1972 (39 of 1972 ), to the extent it does not exceed an amount calculated in accordance with the provisions of sub- sections (2) and (3) of section 43 of that Act." is exempted from income tax.
If the employer is paying more than as prescribed in the Payment of Gratuity Act, the exceeded amount is taxable.
Suppose basic+DA is 50,000 and total year of service is 20 years...then as per the Payment of Gratuity Act the calculated gratuity amount is Rs. 5,76,923.
In this case if the employer pay 7 lacs as gratuity then 7,00,000 - 5,76,923 = Rs. 1,23, 077 will be considered as salary and is taxable.
Gratuity received in excess of the minimum of the amounts as prescribed in the payment of Gratuity Act will be included in the gross salary for the purposes of taxation.
From India, Pune
Dear Mr. Sinha,
I appreciate your effort in clarifying this point as it will help many freshers / executives in HR departments. I had not mentioned this aspect simply because it is accepted belief that anyone who knows gratuity will know that the company will first calculate what is actually due, and rarely a company pays more than what is due to the employee, though I have seen in some cases of Sr. management executives, to sweeten the deal (at the time of appointment) the management in order to retain the employee for minimum certain period promises to pay an extra amount which is ex-gratia but is inappropriately termed and clubbed with gratuity. My emphasis was on the point that if at all the amount of gratuity which is calculated and the said calculation of eligible gratuity amount exceeds Rs. 10 lakhs, in such cases as you rightly said the amount is taxable beyond Rs. 10 lakhs. However in my opinion any amount paid over and above the actual eligible gratuity calculated to any employee cannot be termed as gratuity, I am taking your e.g. to illustrate:
"Suppose basic+DA is 50,000 and total year of service is 20 years...then as per the Payment of Gratuity Act the calculated gratuity amount is Rs. 5,76,923.
In this case if the employer pay 7 lacs as gratuity then 7,00,000 - 5,76,923 = Rs. 1,23, 077 will be considered as salary and is taxable."
Here Rs. 5,76,923/- is GRATUITY & Rs. 1,23,077/- is NOT SALARY or gratuity, it is termed as EX-GRATIA and it is taxable.
I hope this helps many here to understand the difference.
From India, Chennai
I appreciate your effort in clarifying this point as it will help many freshers / executives in HR departments. I had not mentioned this aspect simply because it is accepted belief that anyone who knows gratuity will know that the company will first calculate what is actually due, and rarely a company pays more than what is due to the employee, though I have seen in some cases of Sr. management executives, to sweeten the deal (at the time of appointment) the management in order to retain the employee for minimum certain period promises to pay an extra amount which is ex-gratia but is inappropriately termed and clubbed with gratuity. My emphasis was on the point that if at all the amount of gratuity which is calculated and the said calculation of eligible gratuity amount exceeds Rs. 10 lakhs, in such cases as you rightly said the amount is taxable beyond Rs. 10 lakhs. However in my opinion any amount paid over and above the actual eligible gratuity calculated to any employee cannot be termed as gratuity, I am taking your e.g. to illustrate:
"Suppose basic+DA is 50,000 and total year of service is 20 years...then as per the Payment of Gratuity Act the calculated gratuity amount is Rs. 5,76,923.
In this case if the employer pay 7 lacs as gratuity then 7,00,000 - 5,76,923 = Rs. 1,23, 077 will be considered as salary and is taxable."
Here Rs. 5,76,923/- is GRATUITY & Rs. 1,23,077/- is NOT SALARY or gratuity, it is termed as EX-GRATIA and it is taxable.
I hope this helps many here to understand the difference.
From India, Chennai
I think there is a ceiling limit for Gratuity, ie Rs.3,50,000/-. Am I correct.
From India, Bangalore
From India, Bangalore
Gratuity amount may be having ceiling amount, ie. Rs.3,50,000/- maximum. Pl have a check onceagain.
From India, Bangalore
From India, Bangalore
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FORM-F-NOMINATI ON OF GRATUITY.pdf
Gratuity Form I.doc