Computations of tds

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ntc pioneer (Querist)
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18 January 2024 Sir based on the facts and figures given below

An Employee who was working with a pvt company (coming under the purview of gratuity act) ,for the past 10 yrs resigned after working for 3 months in the fy 23-24

Gross earnings for 3 months- 300000
El encashment on resignation-150000
Gratuity-500000

Deductions

Pf -20000
Standard deduction-50000

He had chosen old tax regime at the beginning of the fy .Also no tds was deducted for the period april 23 to june 23.

Now gratuity and el cashment is to be settled.

1) Plz clarify if any tds is to be recovered.
2) Whether gratuity is to be included in the calculation of total earnings or not.

Please clarify at the earliest

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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19 January 2024 https://cleartax.in/s/income-tax-exemption-on-gratuity

ntc pioneer

ntc pioneer (Querist)
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20 January 2024 Sir is the gross total income in the above case to be taken as

Rs 950000 or

Rs 450000

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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20 July 2024 Based on the information provided, here's the computation regarding TDS (Tax Deducted at Source) for the employee's earnings, gratuity, and leave encashment:

### Computation:

1. **Gross Earnings for 3 months**: Rs. 3,00,000
2. **Leave Encashment on Resignation**: Rs. 1,50,000
3. **Gratuity**: Rs. 5,00,000

**Deductions:**
- PF: Rs. 20,000
- Standard Deduction: Rs. 50,000

### Taxable Income Calculation:

**Total Gross Income**:
- Gross Earnings: Rs. 3,00,000
- Leave Encashment: Rs. 1,50,000
- Gratuity: Rs. 5,00,000

Total Gross Income = Rs. 3,00,000 + Rs. 1,50,000 + Rs. 5,00,000 = Rs. 9,50,000

**Deductions**:
- PF: Rs. 20,000
- Standard Deduction: Rs. 50,000

Total Deductions = Rs. 20,000 + Rs. 50,000 = Rs. 70,000

**Taxable Income** = Total Gross Income - Total Deductions
Taxable Income = Rs. 9,50,000 - Rs. 70,000 = Rs. 8,80,000

### TDS Calculation:

Since the employee has opted for the old tax regime and no TDS was deducted from April 2023 to June 2023, the employer is required to calculate and deduct TDS on the following components:

- **Leave Encashment**: TDS is applicable on leave encashment under section 10(10AA) of the Income Tax Act. Generally, TDS on leave encashment is applicable at the time of payment, and it is treated as salary income.

- **Gratuity**: TDS on gratuity is applicable under section 10(10)(ii) of the Income Tax Act. The tax treatment for gratuity includes exemptions up to specified limits based on the provisions of the Act.

### Specific Responses:

1. **TDS Recovery**: Since no TDS was deducted from April 2023 to June 2023, the employer should calculate TDS on the leave encashment and gratuity at the applicable rates. This TDS should be deducted at the time of payment of these amounts to the employee.

2. **Inclusion of Gratuity**: Yes, gratuity is included in the calculation of total earnings for the purpose of determining the taxable income. It forms part of the employee's income for the financial year in which it is received.

### Conclusion:

- The employer should calculate TDS on the leave encashment and gratuity as per the provisions of the Income Tax Act.
- Ensure compliance with TDS deduction and deposit rules to avoid penalties or interest.

For precise computation and adherence to tax laws, it's advisable to consult with a qualified tax advisor or chartered accountant who can provide tailored advice based on the latest tax regulations and the specific circumstances of the employee and employer.