Introduction:
Gratuity is a retirement benefit given by the employer to the
employee in consideration of past services. Gratuity received by an assessee other than employee shall not be
eligible for exemption under section 10(10).
Example:
Gratuity received by an agent of LIC of India is not eligible for
exemption u/s 10(10) as agents are not employees of LIC of India.
Gratuity:
·
Case 1 - During continuation
of service
·
Case 2 - Received after
death of employee
Case A: Gratuity received during continuation of service:
Gratuity received during continuation
of service is fully taxable in the hands of all employee (whether Government or
non-Government employee).
Case B: Gratuity received at the time of termination of service by Government employee:
Gratuity
received at the time of termination of service by Government employee is fully
exempt from tax u/s 10(10).
Tax point:
Government employee, here, includes employee of the Central or the State
Government or local authority but does not include employee of statutory
corporation.
Case C: Gratuity
received at the time of termination of service by non–government (including
foreign government) employee, covered by
the Payment of Gratuity Act.
In such case,
minimum of the following shall be exempted from tax u/s 10(10)(ii):
1. Actual
Gratuity received;
2. 20,00,000;
or
3. 15 working
days salary for every completed year of service
[Arithmetically, 15/26 * Completed year of
service * Salary p.m.]
Notes:
a) Completed year of service includes any fraction in excess of 6 months. (e.g. 7 years 9 months will be treated as 8 years; 7 years 5 months will be treated as 7 years and 7 years 6 months will be treated as 7 years).
b) Salary here
means Basic + DA, last drawn.
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