Gratuity

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mint (Querist)
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23 March 2011 Hi
Could you please explain me the treatment of Gratuity received during the year by employee for Tax computation purpose.

CA Navin Jain

CA Navin Jain (Expert)
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23 March 2011 Gratuity received upto Rs. 1000000 is exempt

CA Namrata Dedhia

CA Namrata Dedhia (Expert)
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23 March 2011 Gratuity recd by Govt employees - fully exempt

For others -
If employee is covered by Payment of Gratuity Act, least of the following is exempt -
1. 10 lakhs,
2. actual gratuity recd, or
3. 15/26*last drawn salary*completed yrs of service
salary here means basic + dearness allowance
completed yrs of service includes part of the yr in excess of 6 months

If employee is NOT covered by Payment of Gratuity Act, least of the following is exempt -
1. 10 lakhs,
2. actual gratuity recd, or
3. 1/2*average salary*completed yrs of service
average salary means average of last ten months' salary immediately before month of retirement
salary here means basic + dearness allowance in terms of employment + commission expressed as a % of turnover achieved by the employee
completed yrs of service DOES NOT include part of the yr in excess of 6 months

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