Tax on Gratuity & Leave Encashment

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

27 July 2010 Dear Sir,

Can you please advise whether Leave Salary & Gratuity Received at the time of resignation is Exigeable to Income Tax? If it is Exigeable then what will be the exemption limit? and whether this exemption is applicable in respect of employer wise?

CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)
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27 July 2010 NO , IT IT NOT TAXABLE EXTENT TO LIMIT

Leave Encashment

Leave encashment while in service is taxable. Encashment of sick leave is taxable.

Leave encashment received at the time of retirement is fully exempt in the case of Government Servants. In the case of non-Govt. Employees, leave encashment is exempt to the extent of the least of the following four amounts: -

Rs. 3,00,000/-
Ten months' average salary;
Cash equivalent of the leave due at the time of retirement;
Leave encashment actually received at the time of retirement.
Here the average salary means the average of the salary drawn during the last ten months before retirement.

Gratuity

Any death cum retirement gratuity received by Government or Local Authority employees is exempt from tax. For Non-Government Employees the taxability depends on whether Gratuity is covered under the Gratuity Act

A) Gratuity covered under the Gratuity Act

For Gratuity covered under the Gratuity Act, total of gratuity received by an employee, covered by the Gratuity Act, from various employers in whole of service is exempt from tax to the extent of least of the following three amounts:

15 days' salary, based on the last drawn salary, for each completed year of service
Rs.10,00,000/-; or
The gratuity actually received.
B) Gratuity not covered under the Gratuity Act

For Gratuity not covered under the Gratuity Act any gratuity not covered by the Gratuity Act, is exempt from tax to the extent of least of the three amounts

The half month's salary for each completed year of service; or
Rs.10,00,000/-; or
The gratuity actually received.