Tax Exemption on Gratuity payment before 5 years

Tax queries 1515 views 1 replies

Dear All,

I want to know, if a company is paying a lump-sum gratuity amount on termination of employment to the employee, then, keeping the following conditions in mind, do a company need to give exemption u/s 10 for gratuity?

 

1.Grauity is paid on the calculation of Monthly Gross Salary x No. of Years worked and not as per calculations under gratuity act 1972 (i.e. Basic / 26 x 15 x No. of Years worked).

 

2.Gratuity amount is being paid after termination of 3 years long employment not complition of 5 years.

 

Please let me know whether exemption u/s10 is allowed for above case or not? If yes, please let know the calculation basis and relevant law for exemption.

 

Thanks in advance.

 

Manish Aneja

Replies (1)

Yah gratuity is exempt when it received on termination of employment - to the least of the following.

1.If employee covered under payment of gratuity Act 1972.

Statutory Limit = 10Lac

gratuity received= ---

15/26*Last drawn salary*completed year of serviceor part thereof excess of 6 month ( Salary means Basic+da)

Whichever is less will be exempt.

2.if employee not covered under Gratuity Act.

Stratutory Limit =10 lac

actually received

1/2* salary*completed year of services ( based on the last 10 months avg salry immediately preceding the month of retirement)

Whichever is less

Salary Means=BS+DA(if provides in terms of employment)+ commission based on fixed % of sales



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