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Taxability of gratuity payment

kulbir (ACCOUNTS) (48 Points)

20 March 2012

Dear All,

My Father was in service of Govt. of Punjab as an Engineer. After his death in 2008, we got gratuity amount around 7.50 lacs (Rs. 3.50 lacs in 2009 and res in 2011) from the department. My question is that whether this amount is taxable. In my view, whole of this amount is not taxable as Section 10 (10) (i) of Income Tax act exempts any amount of death cum retirement gratuity to employees of central or state govt. and 10 (10) (iii) applies only to employees other than state or central govt.

please send or give any reference to any circular or clarification of cbdt regarding this view.

thanks

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bcshettyco (Chartered Accountant In Practice) (65 Points)
Replied 20 March 2012

As per Income tax act, 1961-Any other gratuity received by an employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment, or any gratuity received by his widow, children or dependants on his death, to the extent it does not, in either case, exceed one-half month’s salary for each year of completed service[calculated on the basis of the average salary for the ten months immediately preceding the month in which any such event occurs, subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government] :