Regarding taxability of Gratuity

Based on the provisions of the Income Tax Act, 1961, and the Payment of Gratuity Act, 1972, here is the solution to the query presented in the forum post:

1. Applicable Exemption Limit

The statutory amendment that increased the maximum exemption limit for gratuity from ₹10 lakhs to ₹20 lakhs came into effect on March 29, 2018.

According to the central government notifications, the enhanced limit of ₹20 lakhs applies only to employees who retire, die, or become incapacitated on or after March 29, 2018.

2. Case Analysis

• Date of Retirement: January 31, 2018 (Prior to March 29, 2018)

• Maximum Lifetime Exemption Applicable: ₹10 lakhs

3. Taxability of the Amounts Received

• First Receipt (January 2018): The individual received ₹10 lakhs. This amount is fully exempt from tax under Section 10(10), which completely exhausts his lifetime statutory exemption limit of ₹10 lakhs.

• Second Receipt (March 2021): The individual received an additional ₹5 lakhs. Because the retirement occurred when the ₹10 lakh ceiling was active and that limit has already been fully utilized, no further exemption can be claimed.

Therefore, the subsequent ₹5 lakhs received on March 31, 2021, will be fully taxable under the head "Income from Salaries" (or as a relief under Section 89, if applicable for arrears).

Summary

The applicable exemption limit for this individual is ₹10 lakhs because he retired before March 29, 2018. Since the first ₹10 lakhs fully exhausted his exemption limit, the subsequent ₹5 lakhs received in March 2021 is completely taxable.