Notification:-The Central Board of Direct Taxes (“CBDT”) has extended the enhanced exemption limit of INR 10 lakhs to the employees of companies who do not fall under the provisions of the Payment of Gratuity Act, 1972. The notification will be effective from 24 May 2010.

Implications:-The Central Government had enhanced the limit available for gratuity payments of all government employees to INR. 10 lakhs when the recommendations of the sixth pay commission were implemented with retrospective effect from 1 January 2006. The Payment of Gratuity Act was amended with effect from 24 May 2010 to increase the limit to INR 10 lakhs from INR 3.5 lakhs to private sector employees. This increased limit is also available for claiming income tax exemption for employees of private sector establishments who receive gratuity as per the Payment of Gratuity Act.

The current notification paves the way for employees of the establishments which are either not covered by the Payment of the Gratuity Act or have policies more favourable than that Act to claim tax exemption up to INR 10 lakhs for gratuity payments.

Source: Notification No. 43/2010; F.No.200/3 3/2009-ITA./ dated 11 June 2010.

Notification No. 43/2010 [F.No.200/33/2009-ITA.I], dated 11-6-2010

In exercise of the powers conferred by sub-clause (iii) of clause (10) of section 10 of the Income-tax Act, 1961 (43 of 1961), and in supersession of Ministry of Finance, Department of Revenue, notification no. S.O. 287 dated the 20th January, 1999 the Central Government, having regard to the maximum amount of any gratuity payable to its employees, hereby specifies ten lakh rupees as the limit for the purpose of the said sub-clause in relation to the employees who retire or become incapacitated prior to such retirement or die on or after the 24th day of May, 2010 or whose employment is terminated on or after the said date.

This is set Back for PSU employee who was retired between 01.06.2006 to 23.05.2010 and getting Enhanced Limit of Gratuity 10 lakh as per Recommendation of Sixth pay commission .As they are getting 10 Lakh rs from 01.01.2006 or 01.01.2007 as the case may be but now new exemption limit is available for PSU employess who has retired after 24.05.2010.So person retired between 01.01.2006 to 23.05.2010 have to pay tax on gratuity received more than 3.5 Lach Rupees. Section 10(10)(iii) of the Income-tax Act, 1961 – Gratuity – Gratuity exemption limit raised to Rs.10 lakhs

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

    Retired on 31/01/2007.Received 3.5 Lakhs gratuity on 31/01/2007 and balance gratuity, below 10 lakhs, in july 2010 after TDS.IT dept.have not refunded tax deducted for gratuity and leave encashment .

  2. satpahwa says:

    I retired on 31.03.2009 from a PSU Bank.Received gratuity payment of Rs.4.71 lac on 02.04.2009 and paid tax on 1.21 lac (Rs.4.74lac-Rs.3.50lac ) On revision of pay from retrospective effect(01.11.2007) a sum of Rs.2.35 lac has been paid to me on 06.09.2010 on account of revised gratuity payment.
    Any calculation for payment of tax now?
    Is there any exemption under section 89 ?

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