Gratuity & leave salary on retirement

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tejas (Querist)
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23 March 2016 An employee has received Gratuity & Leave salary both on retirement.
How to make calculation for Relief U/s 89 (1) for Gratuity & Leave salary simultaneously.
While making Relief calculation for Gratuity, We need to add Gratuity in total income.
My Question is If I want to claim relief on Gratuity, then should I include Taxable leave salary also in Total Income for Gratuity relief calculation? & vice versa I need calculation for relief U/s 89 for Gratuity & Leave salary on retirement simultaneously. Where to Show leave salary relief under Form 10E

Need urgent help. Thanks in Advance

tejas

tejas (Querist)
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24 March 2016 pls. clarify this issue

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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26 July 2024 To calculate relief under Section 89(1) of the Income Tax Act for both Gratuity and Leave Salary received on retirement, you need to follow a systematic approach. Section 89(1) provides relief for income that has been taxed in a different year due to its nature of being received in a lump sum or deferred payment. Here’s how you can approach the calculation and filing:

### **1. Understanding Section 89(1) Relief**

**Purpose of Relief:**
- **Section 89(1):** Provides relief for income that is received in a lump sum but pertains to multiple financial years. It allows taxpayers to recalculate their tax for the year of receipt and the years to which the income pertains, thus potentially reducing the tax burden.

### **2. Calculation of Relief for Gratuity**

**Steps to Calculate Relief for Gratuity:**

1. **Determine the Gratuity Amount:**
- **Gratuity Received:** Consider the entire amount of gratuity received.

2. **Calculate Taxable Gratuity:**
- **Taxable Gratuity:** Gratuity is taxable above the exempt limit (₹10 lakhs for government employees and ₹20 lakhs for others, as per the latest amendments).

3. **Recalculate Taxes:**
- **Calculate Tax without Gratuity:** Recalculate the total tax payable for the years to which the gratuity pertains, excluding the gratuity amount.
- **Calculate Tax with Gratuity:** Recalculate the total tax payable for the year of receipt, including the gratuity amount.

4. **Relief Calculation:**
- **Relief Amount:** The relief is the difference between the tax calculated with and without including the gratuity amount for the year of receipt. This relief is usually given for the financial year when the gratuity is received.

### **3. Calculation of Relief for Leave Salary**

**Steps to Calculate Relief for Leave Salary:**

1. **Determine the Leave Salary Amount:**
- **Leave Salary Received:** Consider the entire leave salary amount received.

2. **Calculate Taxable Leave Salary:**
- **Taxable Leave Salary:** Leave salary is taxable beyond the exempt limit as per the provisions.

3. **Recalculate Taxes:**
- **Calculate Tax without Leave Salary:** Recalculate the total tax payable for the years to which the leave salary pertains, excluding the leave salary amount.
- **Calculate Tax with Leave Salary:** Recalculate the total tax payable for the year of receipt, including the leave salary amount.

4. **Relief Calculation:**
- **Relief Amount:** The relief is the difference between the tax calculated with and without including the leave salary amount for the year of receipt.

### **4. Simultaneous Calculation for Gratuity and Leave Salary**

To calculate the relief under Section 89(1) for both gratuity and leave salary received simultaneously:

1. **Calculate Separate Relief:**
- **For Gratuity:** Calculate the relief as described above.
- **For Leave Salary:** Calculate the relief as described above.

2. **Add Relief Amounts:**
- **Total Relief:** Add the relief amounts for both gratuity and leave salary to determine the total relief available.

### **5. Filing Relief Under Form 10E**

**Form 10E:**
- **Purpose:** Form 10E is used to claim relief under Section 89(1) and must be filed along with the income tax return.

**Filling Form 10E:**
1. **Enter Details:** Fill in the details related to income received in lump sum and the years to which it pertains.
2. **Provide Calculations:** Include the calculations for relief as described above.
3. **Show Total Relief:** You need to show the total relief amount calculated for both gratuity and leave salary in Form 10E.

**Submission:**
- **Attach Form 10E:** File the completed Form 10E along with your income tax return for the year in which the relief is being claimed.

### **6. Sample Calculation (Illustrative)**

**Assumptions:**
- **Gratuity Received:** ₹5,00,000
- **Leave Salary Received:** ₹2,00,000
- **Taxable Gratuity:** ₹3,00,000 (exempt limit ₹2,00,000)
- **Taxable Leave Salary:** ₹1,00,000 (exempt limit ₹1,00,000)

**Steps:**

1. **Gratuity Relief Calculation:**
- **Taxable Gratuity Amount:** ₹3,00,000
- **Tax without Gratuity:** Calculate the tax for the years prior to receipt.
- **Tax with Gratuity:** Calculate the tax including the gratuity amount.

2. **Leave Salary Relief Calculation:**
- **Taxable Leave Salary Amount:** ₹1,00,000
- **Tax without Leave Salary:** Calculate the tax for the years prior to receipt.
- **Tax with Leave Salary:** Calculate the tax including the leave salary amount.

3. **Total Relief:**
- **Add Relief Amounts:** Sum up the relief for gratuity and leave salary.

### **Summary**

1. **Include Both Gratuity and Leave Salary in Total Income for Relief Calculation:**
- You need to include the taxable portions of both gratuity and leave salary in the total income for the year of receipt to correctly calculate relief under Section 89(1).

2. **Filing Form 10E:**
- Provide detailed calculations for the relief amount under Form 10E and submit it along with your income tax return.

If you need further assistance, it’s advisable to consult a tax professional or financial advisor who can help with accurate calculations and filing.

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