Salaries - gratuity

Originally posted by : siddharth
	Q1.How will the gratuity be taxed, if there has been a revision of salary with retrospective effect. Earlier exmeption limit was 3.5Lacs, whereas now it is 10Lacs. eg: gratuity recd in 2008 - rs. 5lacs (Tax beyond 3.5lacs @ rate applicable), in 2010 gratuity arrears recd 1 lacs, salary revised w.e.f 2007. Will gratuity be tax free due to the revised limit or will it be taxed? Q2. Gratuity recievable in 2007, but actually recd in 2010. During this gap of 3 years, gratuity limit increased. Will gratuity of (lets say) rs. 6 lacs be taxable or be exempt?

good question i wanted answer for same....

Thanx.. is there any notification for this, or any specific proviso for quoting this.

(i) any death-cum-retirement gratuity received under the revised Pension Rules of the Central Government or, as the case may be, the Central Civil Services (Pension) Rules, 1972, or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or any payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defence services;

(ii) any gratuity received under the Payment of Gratuity Act, 1972 (39 of 1972), to the extent it does not exceed an amount calculated in accordance with the provisions of sub-sections (2) and (3) of section 4 of that Act;

(iii) any other gratuity received by an employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment, or any gratuity received by his widow, children or dependants on his death, to the extent it does not, in either case, exceed one-half month's salary for each year of completed service, calculated on the basis of the average salary for the ten months immediately preceding the month in which any such event occurs, subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government:

Provided that where any gratuities referred to in this clause are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax under this clause shall not exceed the limit so specified:

Provided further that where any such gratuity or gratuities was or were received in any one or more earlier previous years also and the whole or any part of the amount of such gratuity or gratuities was not included in the total income of the assessee of such previous year or years, the amount exempt from income-tax under this clause shall not exceed the limit so specified as reduced by the amount or, as the case may be, the aggregate amount not included in the total income of any such previous year or years.

Explanation. In this clause, and in clause (10AA), " salary " shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule;

you can read the clause its always mentioned as "received" never used "recievable or accounted" so the exemption or taxability is counted only on the date of actual receipt of the payment, not on accural basis or accounting basis.