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The Central Board of Direct Taxes has approved notification of ten lakh rupees as the maximum amount of gratuity entitled to exemption under sub-clause (iii) of clause (10) of section 10 of the Income Tax Act 1961. The notification will be applicable to employees who retire, or become incapacitated before retirement, or expire, or whose services are terminated, on or after the 24th May 2010.

Source: Press Release issued by Ministry of Finance on Friday, June 11, 2010

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Category : Income Tax (25148)

0 responses to “Exemption from Tax for Gratuity Payments Enhanced From Rs. 3.5 Lakh to Rs. 10 Lakh”

  1. T.P.D'Souza. says:

    Mr.P.D.Nanda’s response dated 30/Aug/2010:What was the follow up after Union of India did not take cognizance of Himachal Pradesh Hon. High Court Order dated 29/07/2010 against Writ Petition No:4350 of 2010 ?

  2. P.D.NANDA says:

    P.D.Nanda from Shimla says:

    30th August, 2010.

    In the matter of payment of gratuity, almost all Public Sector Undertakings have made provision in their Rules to pay maximum amount of gratutiy as permissible to Govt. employees from time to time. The employees of the PSUs are getting pension under EPF which is hardly Rs.1300 per month whereas the Govt. employees of their rank are getting pension of about Rs.25,000/- per month and getting full exemption of income tax on gratuity and leave encashment. It is a case of grave injustice, if PSU employee who are getting just negligible pension are compelled to pay income tax on gratuity upto the limit of maximum limit of gratuity payable to Govt. employees. I had filed a representation to the Union Govt. and also met the Union Finance Minister who assured to look into the matter but when there was no response, I had filed a Civil Writ Petition No.4350 of 2010 in the Hon’ble High Court of Himachal Pradesh. Hon’ble High Court vide its judgment dated 29.7.2010 has directed the Union of India to consider the representtion and pass appropriate orders within 3 months. I hope that Govt. will consider the matter for allowing exemption in income tax on gratuity upto Rs.10 lac from the date of implemntation of 6th Pay Commission Report.

  3. Zephyrine Goveas says:

    The decision to grant exemption from income tax only w.e.f. 24.05.10 is totally discriminatory and unjust. When the ceiling is enhanced to Rs.10 lakhs w.e.f. 1.1.2007, why can’t the exemption be granted with retrospective effect. TDS has been deducted from the enhanced amount due to Govt. notification not issuing clarifications from the income tax angle and all the employees were hoping that they will claim refund once clarifications were received. I hope the Govt. reconsiders its decision, especially when the retired employees have to bear the mounting expenses due to high inflation wherein their investments are giving negative returns due to high inflation.

  4. N ageswara Ganti says:

    The limit of Gratuity amount was enhanced from Rs.3.5 Lakhs to Rs.10 Lakhs for Public Sector employees wef their wage revision date of 01.01.2007. Central Government vide notification dated 24th May 2010 made the enhanced ceiling of Gratuity Amount w.e.f 24.5.2010. CBDT has also issued notification exempting the gratuity from Income Tax in respect of employees retiring on or after 24.5.2010. Thus the Gratuity amount if paid from the date of revision of pay scales of PSU employees is linked to Income Tax . On the other hand Gratuity amount paid to Central Government employees is tax free. Thus there is disparity between Central Govt. employees and other Private/Public Sector Employees. The gratuity amount should be totally tax free as the amount itself is paid at the end of the service of an employee as a gratuitous payment to their sustained services rendered to the Company and to the Nation at large. This amount is the only real solace to them to meet out any of their sizable family needs after retirement.Hence no employee should be subjected to payment of Income Tax on such gratuitous amount given (gifted)as a solace & appreciation of their service irrespective of their date of retirement.
    Hope, there wil be matured appreciation of the logics and a fair deal will be meted uniformaly to every employee retired from the efective date of such enhanced gratuity amount and any balance payment effected without deducting any IT on it.

  5. R.Veluswamy says:

    The enhancement of Gratuity amount from Rs.3.5 Lakhs to Rs.10 Lakhs for Public Sector employees wef their wage revision date of 01.01.2007 was a welcome relief & coutesy shown to the employees though the same was effected late. Never such Gratuity is linked to Income Tax as the amount itself is paid at the end of the service of an employee as a gift to their sustained services rendered to the Company and to the Nation at large. This amount is the only real solace to them to meet out any of their sizable family needs.Hence no employee should be subjected to payment of Income Tax on such gifted amount given as a solace & appreciation of their service irrespective of their date of retirement.
    Hope, there wil be matured appreciation of the logics and a fair deal will be meted uniformaly to every employee retired from the efective date of such enhanced gratuity amount and any balance payment effected without deducting any IT on it.

  6. Chandrakant V Haryan says:

    Good Morning friends
    Gratuity is worked out on Basic + DA. However, wherever DA component is not applicable those employees are at loss infact.
    Does it not unfair to those not getting DA ?

    Chandrakant

  7. Aaditya Bahuguna says:

    All the affected employees of private sector who have worked harder, but faced the same hardships,same inflation,as their counterparts in the govt., should join their forces and represent effectively to the Govt. to remove this anamoly and revise the unjust order to bring all the citizens of India at par as per the constitution, and make the enhanced gratuity tax free w.e.f.1.1.2006.

  8. sudhirtelang says:

    central govt has enhenced gratuity w.e.f 1.1.2006 but for privatesector/banking/insurance and other private/pulicsector establishmentgovt declared effective date from 24thmay2010 which is unfortunate and discrimination,disparity,inequity with private sector.pl clarify whethercentral govt.public sector employees who got enhenced gratuity will have to pay incometax.it is very illogical.pl clarify.

  9. Chidambar Samant says:

    As per the Payment of Gratuity Act, 1972 the gratuity is calculated by using denominator 26 & on the basis of last drawn [Basic + Dearness Allowance] of the employee. These two parameter are also used in section 10 [10] (2) of Income Tax Act, 1961, to calculate income tax exempted gratuity amount of the employee.
    In majority cases though the employees are covered under the gratuity act still they have to pay excess Income Tax on gratuity. It is because, as they are receiving more gratuity amount than the gratuity act, majority employers are using section 10 [10] (3) of Income Tax Act, 1961, to calculate income tax exempted gratuity amount of such employees. I think this is unfair. Because in section 10 [10] (3) last 10 month average salary immediately preceding retirement is used & denominator 30 is used to calculate income tax exempted gratuity amount.
    Hence CBDT must issue clarification regarding section 10 [10] (2) & section 10 [10] (3) along with examples. As TDS method is our prevailing practice the employers must sought this clarification at the earliest. It is their prime duty.

  10. Chidambar Samant says:

    CBDT must clarify about section 10 [10] (2) & (3) because of the following:-I am working in TATA Motors Pune. As per section 1(3) of The Payment of Gratuity Act, 1972, it is applicable to TATA Motors. As per our wage settlements we have gratuity as quantum as follows:
    Up to 25 years- 15 days salary per year,
    26 to 30 years- 18 days salary per year &
    31 & above years of service 30 days salary per year.
    For example: – Employee “A” retires from TATA Motors. He had completed 35 years of service. His last drawn wages were Rs. 19,000/-. He had received gratuity amount of Rs. 4, 49, 423/- as per above mentioned wage settlement.
    Gratuity Calculation
    Wages per day = 19,000 / 26 = Rs. 730.77 Rs. / day
    Total no. of days to be considered for gratuity = (25years * 15 days) + (26 to 30 years = 5years * 18 days) + (31to 35years = 5years * 30days)
    = (375 + 90 + 150)
    =Total 615 days
    Gratuity amount payable
    =730.77 Rs. / day * Total 615 days
    = Rs. 4, 49, 423/-
    What about I Tax exempt gratuity in above case.
    Is it as per section 10 [10] (2) i.e.3, 83,653/-Rs. OR
    Is it as per section 10 [10] (3) i.e. 3, 32,500/-Rs. (assuming last 10 months average salary Rs.19, 000/-)
    My query is about I tax exemption as per section 10 [10] (2) or (3) & why?
    CBDT clarification on above subject will provide beneficial to majority employee in India.

  11. K UDAYANANDAN says:

    It is totally unfair that the employees of PSUs who retired before 24-05-10 are not given Tax Relief on the enhanced gratuity amount of Rs.6.50 lacs over and above the earlier Rs.3.50 lacs just because they retired before 24-05-10. It is only fair and logical that the IT exemption is granted from the very date of implementation of the enhanced gratuity i.e. from 01-01-07 for the PSU employees.

  12. Mukund Dashputre says:

    Will any body explain me clearly what is RR sales and sales on High seas ???.

  13. IK ARORA says:

    As per notification dated June 11, 2010, only those employees who retired, expired, terminated on or after 24th May, 2010, will get exemption of Income Tax on gratuity upto 10 lakhs. What will happan to thousands of employees of PSUs who got gratuity of 10 lakhs after 1.1.2007 as per BPE/DPE guidelines. Whether a separate notification will be issued by Min. of Fin. Govt. of India or not ? Whether they will get refund of TDS on gratuity or not?

  14. Gowrish Kumar Kateel says:

    Is this limit for each retirement, termination…. or as a whole ?

  15. m jagadish says:

    Thanks for the information
    can i get copy of the finance ministry notification

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