Gratuity payment under the Payment of Gratuity Act, 1972 or otherwise exempt to the extent covered under the Income Tax Act

SUMMARY OF CASE LAW

The Income-tax Act exempts the gratuity amount to the extent of limit prescribed under the said Act; there is no distinction between the gratuity paid under the Payment of Gratuity Act, 1972 or otherwise

RELEVANT PARAGRAPH

No doubt, section 192 of the Income-tax Act requires the employer to deduct the income-tax from the salary and the salary is defined under section 17 of the Income-tax Act, which includes wages, any annuity or pension, any gratuity, any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages, any advance of salary and other payments. However, section 10 of the Income-tax Act excludes certain amounts to be included in the total income. Section 10 sub-section (10) deals with the exclusion of the gratuity amount from the total income. The relevant provision for the purpose of this case is, section 10 sub-section (10) clause (iii) of the Income-tax Act, which reads as under :

“10.(10)(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 paying regard to the limit applicable in this behalf to the employee of that Government”.

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