1) It is the payment received from the company by the employee in appreciation of past service.

Hence it is given out of love and regard for good work done by employee during job

 

2) It may be received on retirement by the employee himself or on death, by his/her legal heir .

 

Gratuity - Taxability Of Retirement Benefits

How to Calculate Exemption

For Central Government /State Government Employees/Member of Defence Service covered under Pension Code

Fully Exempt

 

For Other Employees

 There can be 2 cases

Covered under Payment of Gratuity Act Not Covered under Payment of Gratuity Act
Least of 3 is exempt Least of 3 is exempt

1. Rs 1000000

1. Rs 1000000

2.Actual Gratuity Received

2.Actual Gratuity Received

3.15/26 days Salary for each completed year

of Service and part greater than 6 months

3,Half Month (15/30) Salary for

completed year of Service

 

   
Month Consists of 26 days,so we take 15/26 Month Consists of 30 days,so we take 15/30 or 1/2
Gratuity calculated for Part of month greater than 6 months to be i Gratuity NOT calculated for part of months (only completed year to be taken)

 Salary means

Basic+DA only

 Salary means

Basic+DA forming part of retirement benefits+Commission Charged as a % of turnover 

 

 

 

Note :−

1)Note: Only gratuity received at the time of retirement or death is exempt as above.f gratuity received during employment it is fully taxable

2) If gratuity received from more than 1 employer then Rs.1000000/- is the total limit for all the employers.

3)The amount worked under previous employers to be added for calculating total period of service

This is done only if employee has not claimed exemption earlier .

 

Question

Mr. Ravi retired on 15.6.2015 after completion of 26 years 8 months of service and received gratuity of Rs 6,00,000. At the time of retirement his salary was:

Particulars Amount
Basic salary Rs 5,000 p.m.
Dearness Allowance Rs 3,000 p.m. (60% of which is for retirement benefits)
Commission 1% of turnover (turnover in the last 12 months was Rs
12,00,000) Bonus Rs 12,000 p.a.

Compute his taxable gratuity assuming:

(i)  He is non-government employee and covered by the Payment of Gratuity Act

-a-

Particulars Amount
Amount Received 600000
   
Amount Exempt  
Actual Amount Received 600000
Rs 100000 10000000
15/26 Salary for each completed year of service 124615.38
  (5000+3000)*27*15/26
   
Min Exempt 124615.38
   
Amount taxable 475384.62

-ea-

(ii) He is non-government employee and not covered by Payment of Gratuity Act

-a-

Particulars Amount
Amount Received 600000
   
Amount Exempt  
Actual Amount Received 600000
Rs 100000 10000000
15/26 Salary for each completed year of service 104000
 

(5000+3000*60%

+1%*120000)*26*15/30

   
Min Exempt 104000.00
   
Amount taxable 496000.00

-ea-

(iii) He is a Government employee

-a-

In this case,amount is fully exempt

Particulars Amount
Amount Received 600000
   
Amount Exempt 600000
   
Amount taxable 0.00

-ea- 

  1. Income Tax
  2. Income from Salaries
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CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 6 years. He provides courses for Practical Accounts, Taxation and Efiling at teachoo.com .
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