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Taxability of Gratuity in the hands of nominee

Dear Friends & Experts,

My querry is as under:

A company has taken Group Gratuity policy of LICI for payment of gratuity to its employees. Annual contribution is paid to LICI based on Calculation done by LICI which includes Contribution to Gratuity Fund and annual premium for life cover of the employee to pay gratuity in the unfortunate event of death. In case of death gratuity is paid out of the Gratuity fund managed by LICI based on last salary drawn for actual years of service put-in and life-cover amount is by LICI for the remaining period of service considering the retirement age of 60 years. Amount of Gratuity and/or lifecover is restricted to a maximum of 20 months pay but not restricted to the limit of Rs3.50 Lakh and Income Tax is deducted on the amount in excess of Rs.3.50 Lakh.
My questions are -
(i) Whether the full amount of Gratuity (Gratuity out of Fund + Lifecover amount paid by LICI) received by the nominee of the deceased employee taxable as income of the deceased employee in the relevant AY or it will be taxable in the hands of the nominee?
(ii) Since part of the Gratuity Viz., the life cover amount, paid by LICI out of the group insurance policy for which annual premium has been charged by LICI, whether the same will be exempt u/s10(10D)in the hands of the deceased employee or his nominee ?

Shall be grateful for resolving my problem. Reply can also be mailed to me at aditya_asm@yahoo.co.in

Thanks & regards,

Only the gratuity amount in excess of Rs. 3.50 lacs alone is taxable.

Thanks Mr. Raghavan. But in whoose hands it will be taxable ? and Whether it will be taxable on accrual basis, i.e., in the FY it became due due to death of employee or in the FY of receipt of the same by the nominee? Further, if taxable in the hands of nominee under which head of income it will be taxable ?

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