Gratuity

This query is : Resolved

Aji .p.aravind (Querist)
Follow

01 April 2015 Dear Sir,

Whether gratuity received will be calculated for computing income tax return assessment.

Thanks

CS,CA F,Numrologi TusharSampat

CS,CA F,Numrologi TusharSampat (Expert)
Follow

01 April 2015 yes but then there is exemption also under sec 10.

Aji .p.aravind

Aji .p.aravind (Querist)
Follow

02 April 2015 THANK YOU SIR,

CAN YOU PLEASE SHARE ME THE LATEST /PREVAILING PROVISIONS FOR COMPUTING I.T ON SALARY.

THANKS

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
Follow

26 July 2024 ### Calculation of Gratuity for Income Tax Return

**Gratuity Received by Employees** is an important consideration for tax calculation. The provisions for computing income tax on salary, including gratuity, are governed by the Income Tax Act, 1961. Here is a comprehensive guide on how gratuity is treated:

#### **1. Gratuity Tax Exemption**

Gratuity received by employees is partially or fully exempt from tax, depending on the type of employer and the amount received.

**a. Government Employees:**
- Gratuity received by central or state government employees is fully exempt from tax under **Section 10(10)(i)** of the Income Tax Act, regardless of the amount received.

**b. Employees Covered Under Payment of Gratuity Act:**
- **Exemption Limit:** Up to ₹20 lakh (from FY 2020-21 onwards) is exempt under **Section 10(10)(ii)**. For earlier years, the limit was ₹10 lakh. Any amount exceeding this limit is taxable.

**c. Employees Not Covered Under Payment of Gratuity Act:**
- For non-Government employees not covered under the Payment of Gratuity Act, the tax exemption is subject to limits specified by the Act. The amount exempted is the least of:
- The actual gratuity received
- The amount specified under the Payment of Gratuity Act (up to ₹20 lakh)
- 15 days' salary for each year of service based on the last drawn salary

#### **2. Tax Treatment of Gratuity**

**a. Exemption Calculation:**

For **non-Government employees**, the tax exemption is calculated as follows:
1. **Determine the Exempt Amount:**
- **Exempt Portion = Least of:**
- Actual Gratuity Received
- ₹20 lakh (current limit) or the specified limit for the relevant financial year
- 15 days' salary for each year of service

2. **Taxable Amount:**
- **Taxable Gratuity = Gratuity Received - Exempt Portion**

**b. For Government Employees:**
- The entire amount received is exempt from tax.

**c. Reporting in Income Tax Return:**
- **Exempt Portion:** Report under “Exempt Income” in the ITR form.
- **Taxable Portion (if any):** Include under “Income from Salary” and calculate tax accordingly.

### **3. Current Provisions for Computing Income Tax on Salary**

As of the latest provisions:

1. **Salary Definition:**
- Includes basic pay, allowances, perquisites, and bonuses.

2. **Allowances and Perquisites:**
- Some allowances (like house rent allowance) and perquisites (like rent-free accommodation) are partially exempt or subject to specific rules.

3. **Deductions:**
- Employees can claim deductions under Section 80C for investments like EPF, PPF, etc.
- Other deductions include Section 24(b) for home loan interest and Section 10(14) for certain allowances.

4. **Tax Slabs for FY 2024-25:**
- **For Individuals below 60 years:** Income up to ₹2.5 lakh is exempt; 5% tax for income between ₹2.5 lakh and ₹5 lakh; 10% tax for income between ₹5 lakh and ₹10 lakh; 20% tax for income above ₹10 lakh.
- **For Senior Citizens (60 years and above):** Income up to ₹3 lakh is exempt; similar slabs apply as for individuals.

5. **Advance Tax and TDS:**
- Tax on salary is generally deducted at source by the employer. Advance tax is applicable if the total tax liability exceeds ₹10,000.

### **4. Practical Steps for Filing IT Returns:**

1. **Gather Documents:**
- Form 16, salary slips, proof of deductions, and details of gratuity received.

2. **Calculate Taxable Income:**
- Sum up all sources of income, including salary, and deduct exemptions and deductions.

3. **File ITR:**
- Use the appropriate ITR form (e.g., ITR-1 or ITR-2) to file your tax return, ensuring all income and exemptions are correctly reported.

4. **Review:**
- Verify the return before submission to ensure accuracy.

### **References:**

1. **Income Tax Act, 1961** - Sections 10(10)(i) and 10(10)(ii) for gratuity exemptions.
2. **Finance Acts** - For changes in exemption limits.
3. **Income Tax Department Website** - For the latest forms and updates.

By following these guidelines, you can accurately determine the tax treatment of gratuity and ensure compliance with the Income Tax Act.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now