Taxation of gratuity

Hi,

The lower of the following will be exempt from tax and remaining amount will be taxable:

1. last drawn salary x number of years in employment x 15/26.

2. 10 lacs

3. Gratuity actually received (I.e. 8 lacs)

Last drawn salary is Basic salary and DA.

Number of years in service is rounded off to the nearest full year. For example – if you have worked in an organization for 12 years and 2 months, the number of years in employment shall be considered to be 12 years. And in case you have worked for 12 years and 7 months, the number of years in employment shall be considered to be 13 years.

Hope you have correctly mention the gratuity in your return of income. Otherwise you need to revise it.

Please feel free to call/ revert in case you need additional clarity/ guidance.

Thanks and regards

Abhishek Dugar

CA CS B.Com

Hi,

The amount of gratuity received by you will be taxed if it exceeds the lower of:

1. Rs. 10 lakhs

2. Actual amount received i.e. Rs. 8 lakhs

3. Last drawn monthly salary multiplied by the number of years of service, multiplied by 15 days and divided by 26 days (Last drawn monthly salary * number of years of service * 15 / 26)

The last drawn monthly salary will be your Basic and Dearness Allowance, received if any.

The number of years of service will be rounded off to the nearest complete whole number i.e. Months will not be considered if it less than 6 months.

If there is any taxable gratuity amount, you will have to offer it to tax.

Usually if there is any taxable gratuity, the employers usually deduct tax, since the onus is on them to deduct it. Nevertheless, you should calculate and verify whether there is any taxable gratuity.

Regards,

Keerthiga Padmanabhan

M.Com., CA, LL.B

Hi,

Gratuity Received is exempt subject to certain conditions. In most cases, the gratuity will be fully exempt