Query regarding exemption of Gratuity

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Pawan Agrawal (Querist)
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14 June 2010 I received Gratuity from previous (first) employers Rs. 55,000/- in 2004 and now again in 2009 i receive again Gratuity from second employers around Rs. 150,000/-. At the time of 1st gratuity, i have taken exemption u/s 10 (10) as per Income Tax Act. Please advise whether Rs. 150,000/- is again exempted U/s 10 (10) or taxable. apart from this, exemption limit of Rs.350,000/10,00,000 is applicable for one time or whole service time. i am woring in private sector.

Please advise

CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)
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14 June 2010
Tax treatment of gratuity :- For the purpose of exemption of gratuity under sec.10 (10) the employees are divided under three categories:

Any death cum retirement gratuity received by Central and State Govt. employees, Defense employees and employees in Local authority shall be exempt.
Any gratuity received by persons covered under the Payment of Gratuity Act, 1972 shall be exempt subject to following limits:-
For every completed year of service or part thereof, gratuity shall be paid at the rate of fifteen days wages based on the rate of wages last drawn by the concerned employee.
The amount of gratuity as calculated above shall not exceed Rs. 3,50,000/- (w.e.f. 24.9.97).
In case of any other employee, gratuity received shall be exempt, subject to the following exemptions
Exemption shall be limited to half month salary (based on last 10 months average) for each completed year of service or Rs. 3.5 Lakhs whichever is less.
Where the gratuity was received in any one or more earlier previous years also and any exemption was allowed for the same, then the exemption to be allowed during the year gets reduced to the extent of exemption already allowed, the overall limit being Rs. 3.5. Lakhs.
The exemption in respect of gratuity is permissible even in cases of termination of employment due to resignation. The taxable portion of gratuity will quality for relief u/s 89(1). Gratuity payment to a widow or other legal heirs of any employee who dies in active service shall be exempt from income tax subject to provisions mentioned above.

The ceiling of Rs.3.5 lakh applies to the aggregate of gratuity received from one or more employers in the same or different years.

Hence Rs.150000 recd by you will be exempet subject to amount arived from formula provided above.

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