Taxation of Gratuity received from a Gratuity Trust
This query is : Resolved
17 May 2008
Dear Seniors
Our Client is having their own Approved Gratuity Trust set up.
As per their Internal proces they pay gratuity to resignees even they have not completed the 5 years of Service.
Will such gratuity will qualify for tax exemption under section 10(10)(ii) or 10(10)(iii).
Kidnly help me out so that I can advise them.
Our Client is having their own Approved Gratuity Trust set up.
As per their Internal proces they pay gratuity to resignees even they have not completed the 5 years of Service.
Will such gratuity will qualify for tax exemption under section 10(10)(ii) or 10(10)(iii).
Kidnly help me out so that I can advise them.
17 May 2008
In the present age, Gratuity is no more a gratuitous payment but has become legally compulsory in most of the cases. Gratuity being a retirement benefit is generally payable at the time of employment and on basis of duration of service. Where the payment of Gratuity Act, 1972, is inapplicable, an employee can claim gratuity under the terms of contract of employment.
BROAD TAX TREATMENT
Status of Employee
Whether Gratuity is taxable
Government employee
It is fully exempt from tax under section 10(10)(i)
Non-Government employee covered by the payment of Gratuity Act, 1972
It is fully or partly exempt from tax under section 10(10)(ii)
Non-Government employee not covered by the payment of Gratuity Act, 1972
It is fully or partly exempt from tax under section 10(10)(iii)
In Simple words, the taxation part comes into picture only in the last two cases, which are dealt below in detail:
IN THE CASE OF EMPLOYEES COVERED BY THE PAYMENT OF GRATUITY ACT, 1972, [SEC. 10(10)(ii)]:-
Any gratuity received by an employee, covered by the Payment of Gratuity Act, 1972, is exempt from tax on the following basis
1.
15 days’ salary( 7 days’ salary in the case of employee of a seasonal establishment) based on salary last drawn for each of service (i.e., 15 days’ salary × length of service)
2.
Rs. 3,50,000
3.
Gratuity actually received.
How to find out length of service – If the period of service is 6 months or less than 6 months, it shall be ignored for this purpose. Conversely, if the period of the service is more than 6 months it shall be taken as one full year.
Meaning of ‘Salary’ – “Salary” for the purpose of the aforesaid limits means salary last drawn by the employee and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.
Salary of 15 days – Salary of the 15 days is calculated by dividing salary last drawn by 26, i.e. maximum number of working days, in a month. For instance, if monthly salary at the time of retirement is Rs. 1000, 15 days’ salary would come to Rs. 576.92/- (i.e., Rs. 1000 × 15 ÷26).
IN THE CASE OF EMPLOYEES NOT COVERED BY THE PAYMENT OF GRATUITY ACT, 1972,
Any gratuity received by an employee, not covered by the Payment of Gratuity Act, 1972, is exempt from tax on the following basis
1.
Rs. 3,50,000
2.
Half month’s average salary for each completed year service.
3.
Gratuity actually received.
How to find out length of service – Same as Above
· Meaning of ‘Salary’ – Same as Above
Half Month’s Average Salary – Average Salary being calculated on same lines as in case of Leave Salary, such Average monthly salary divided by 2 is Half month’s Average Salary
BROAD TAX TREATMENT
Status of Employee
Whether Gratuity is taxable
Government employee
It is fully exempt from tax under section 10(10)(i)
Non-Government employee covered by the payment of Gratuity Act, 1972
It is fully or partly exempt from tax under section 10(10)(ii)
Non-Government employee not covered by the payment of Gratuity Act, 1972
It is fully or partly exempt from tax under section 10(10)(iii)
In Simple words, the taxation part comes into picture only in the last two cases, which are dealt below in detail:
IN THE CASE OF EMPLOYEES COVERED BY THE PAYMENT OF GRATUITY ACT, 1972, [SEC. 10(10)(ii)]:-
Any gratuity received by an employee, covered by the Payment of Gratuity Act, 1972, is exempt from tax on the following basis
1.
15 days’ salary( 7 days’ salary in the case of employee of a seasonal establishment) based on salary last drawn for each of service (i.e., 15 days’ salary × length of service)
2.
Rs. 3,50,000
3.
Gratuity actually received.
How to find out length of service – If the period of service is 6 months or less than 6 months, it shall be ignored for this purpose. Conversely, if the period of the service is more than 6 months it shall be taken as one full year.
Meaning of ‘Salary’ – “Salary” for the purpose of the aforesaid limits means salary last drawn by the employee and includes dearness allowance but does not include any bonus, commission, house rent allowance, overtime wages and any other allowance.
Salary of 15 days – Salary of the 15 days is calculated by dividing salary last drawn by 26, i.e. maximum number of working days, in a month. For instance, if monthly salary at the time of retirement is Rs. 1000, 15 days’ salary would come to Rs. 576.92/- (i.e., Rs. 1000 × 15 ÷26).
IN THE CASE OF EMPLOYEES NOT COVERED BY THE PAYMENT OF GRATUITY ACT, 1972,
Any gratuity received by an employee, not covered by the Payment of Gratuity Act, 1972, is exempt from tax on the following basis
1.
Rs. 3,50,000
2.
Half month’s average salary for each completed year service.
3.
Gratuity actually received.
How to find out length of service – Same as Above
· Meaning of ‘Salary’ – Same as Above
Half Month’s Average Salary – Average Salary being calculated on same lines as in case of Leave Salary, such Average monthly salary divided by 2 is Half month’s Average Salary
17 May 2008
Dear Hemant
Thank you so much for your reply.
.our cleint is private company employing more than 100 employees, hence he should covered by the payment of Gratuity Act and then the case will be treated in section 10(10)(ii).
But my questen is will it come in defenation of any other employer as they have setup thier own gratuity trust, and then they will cover under section 10(10)(iii)
Will they come :IN THE CASE OF EMPLOYEES NOT COVERED BY THE PAYMENT OF GRATUITY ACT, 1972,
Thank you so much for your reply.
.our cleint is private company employing more than 100 employees, hence he should covered by the payment of Gratuity Act and then the case will be treated in section 10(10)(ii).
But my questen is will it come in defenation of any other employer as they have setup thier own gratuity trust, and then they will cover under section 10(10)(iii)
Will they come :IN THE CASE OF EMPLOYEES NOT COVERED BY THE PAYMENT OF GRATUITY ACT, 1972,
17 May 2008
Thank you so much for your reply.
.our cleint is private company employing more than 100 employees, hence he should covered by the payment of Gratuity Act and then the case will be treated in section 10(10)(ii).
But my questen is will it come in defenation of any other employer as they have setup thier own gratuity trust, and then they will cover under section 10(10)(iii)
Will they come :IN THE CASE OF EMPLOYEES NOT COVERED BY THE PAYMENT OF GRATUITY ACT, 1972,
.our cleint is private company employing more than 100 employees, hence he should covered by the payment of Gratuity Act and then the case will be treated in section 10(10)(ii).
But my questen is will it come in defenation of any other employer as they have setup thier own gratuity trust, and then they will cover under section 10(10)(iii)
Will they come :IN THE CASE OF EMPLOYEES NOT COVERED BY THE PAYMENT OF GRATUITY ACT, 1972,
19 May 2008
Thank you so much for your reply.
.our cleint is private company employing more than 100 employees, hence he should covered by the payment of Gratuity Act and then the case will be treated in section 10(10)(ii).
But my questen is will it come in defenation of any other employer as they have setup thier own gratuity trust, and then they will cover under section 10(10)(iii)
Will they come :IN THE CASE OF EMPLOYEES NOT COVERED BY THE PAYMENT OF GRATUITY ACT, 1972,
.our cleint is private company employing more than 100 employees, hence he should covered by the payment of Gratuity Act and then the case will be treated in section 10(10)(ii).
But my questen is will it come in defenation of any other employer as they have setup thier own gratuity trust, and then they will cover under section 10(10)(iii)
Will they come :IN THE CASE OF EMPLOYEES NOT COVERED BY THE PAYMENT OF GRATUITY ACT, 1972,
20 June 2008
Dear Seniors
Our Client is having their own Approved Gratuity Trust set up.
As per their Internal proces they pay gratuity to resignees even they have not completed the 5 years of Service.
Will such gratuity will qualify for tax exemption under section 10(10)(ii) or 10(10)(iii).
Kidnly help me out so that I can advise them.
Our Client is having their own Approved Gratuity Trust set up.
As per their Internal proces they pay gratuity to resignees even they have not completed the 5 years of Service.
Will such gratuity will qualify for tax exemption under section 10(10)(ii) or 10(10)(iii).
Kidnly help me out so that I can advise them.
20 June 2008
Dear Seniors
Our Client is having their own Approved Gratuity Trust set up.
As per their Internal proces they pay gratuity to resignees even they have not completed the 5 years of Service.
Will such gratuity will qualify for tax exemption under section 10(10)(ii) or 10(10)(iii).
Kidnly help me out so that I can advise them.
Our Client is having their own Approved Gratuity Trust set up.
As per their Internal proces they pay gratuity to resignees even they have not completed the 5 years of Service.
Will such gratuity will qualify for tax exemption under section 10(10)(ii) or 10(10)(iii).
Kidnly help me out so that I can advise them.
12 June 2023
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