Exemption of Gratuity

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This query is : Resolved

Manish (Querist)

28 November 2009 Our company is paying salary on CTC basis and pays salary after deducting gratuity every month. Company retains such gratuity amount and release the same to employee on retirement, resignation or termination of employee.

My query is if an employee resigns from company before completion of 5 years period and receive gratuity on resignation before attaining 5 years. Whether such grauity amt would be exempted from income tax or taxable in the hands of emloyee?

Whether company is liabile to deduct TDS or not while paying gratuity before 5 years of completion?

Rasesh

Rasesh (Expert)

28 November 2009 In most cases, the company will not pay gratuity to the employee if he resigns before completing five years of service. The fact that the same was shown in the CTC is irrelevant. Income Tax is not levied on the CTC but on the taxable income which was accrued to the person.

However, in case gratuity is paid, then it is taxable, if it is exceeding the limits prescribed under the act.

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