Gratuity Exemption limit AY 2019-20 FY 2018-19 under Income Tax Act 

By | June 13, 2018
(Last Updated On: June 13, 2018)

Gratuity Exemption limit AY 2019-20 FY 2018-19 under Income Tax Act

Gratuity Exemption limit AY 2019-20 FY 2018-19 under Income Tax Act is given as per Section 10(10) of Income Tax Act of India

 

1

Death -cum-Retirement Gratuity received by other employees who are covered under Gratuity Act, 1972 (other than Government employee) (Subject to certain conditions).

10(10)(ii)

Least of following amount is exempt from tax:

1. (*15/26) X Last drawn salary** X completed year of service or part thereof in excess of 6 months.

2. Rs. 20,00,000 [Note -1]

3. Gratuity actually received.

*7 days in case of employee of seasonal establishment.

** Salary = Last drawn salary including DA but excluding any bonus, commission, HRA, overtime and any other allowance, benefits or perquisite

2.

Death -cum-Retirement Gratuity received by other employees who are not covered under Gratuity Act, 1972 (other than Government employee)(Subject to certain conditions).

10(10)(iii)

Least of following amount is exempt from tax:

1. 1/2 X Average Salary* X Completed years of service

2. Rs. 10,00,000 [Note  2]

3. Gratuity actually received.

*Average salary = Average Salary of last 10 months immediately preceding the month of retirement

**Salary = Basic Pay + Dearness Allowance (to the extent it forms part of retirement benefits)+ turnover based commission

Notes

1 Section 10(10) (ii) of Income Tax Act :

. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included—

any gratuity received under the Payment of Gratuity Act, 1972 (39 of 1972), to the extent it does not exceed an amount calculated in accordance with the provisions of sub-sections (2) and (3) of section 4 of that Act ;

Refer Notification issued under Section 4(2) and 4(3) of Payment of Gratuity Act, 1972 :  Gratuity Tax Free Limit increased to Rs 20 Lakh : Notification Dated 29.03.2018

Enhancement of Gratuity Limit w.e.f. 29.03.2018.

2. Section 10(10) (iii) of Income Tax Act :

  1. NOTIFICATION NO.SO 1414(E) [NO.43/2010 (F.NO.200/33/2009-ITA-I)], DATED 11-6-2010In 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 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.

Relevant Portion of Section 10(10) of income Tax act

Incomes not included in total income.

10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included—

…..

27[28(10) (i) any death-cum-retirement gratuity received under the revised Pension Rules of the Central Government or, as the case may be, the Central Civil Services (Pension) Rules, 1972, or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or any payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defence services ;

(ii) any gratuity received under the Payment of Gratuity Act, 1972 (39 of 1972), to the extent it does not exceed an amount calculated in accordance with the provisions of sub-sections (2) and (3) of section 430 of that Act ;

(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, 32[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 limit33 as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government] :

Provided that where any gratuities referred to in this clause are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax under this clause 35[shall not exceed the limit so specified] :

Provided further that where any such gratuity or gratuities was or were received in any one or more earlier previous years also and the whole or any part of the amount of such gratuity or gratuities was not included in the total income of the assessee of such previous year or years, the amount exempt from income-tax under this clause 35[shall not exceed the limit so specified] as reduced by the amount or, as the case may be, the aggregate amount not included in the total income of any such previous year or years.

36[***]

Explanation.37[In this clause, and in clause (10AA)], “salary” shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule ;]


27. Substituted by the Finance Act, 1974, w.e.f. 1-4-1975. Original clause was amended first by the Finance Act, 1972, w.e.f. 1-4-1973 and then by the Finance Act, 1974, w.r.e.f. 1-6-1972/1-4-1962.

28. See also Letter F. No. 1(79)-62/TPL, dated 13-12-1962 (Gratuity paid to private sector employees) and Letter F. No. 194/6/73-IT(A-I), dated 19-6-1973 (Resignation is also covered).

30 The limit laid down under section 4(3) of the Payment of Gratuity Act, 1972 [as amended by the Payment of Gratuity (Amendment) Act, 2018, with effect from 29-3-2018] is Rs. 20,00,000.

The limit laid down under section 4(3) of the Payment of Gratuity Act, 1972 [as amended by the Payment of Gratuity (Amendment) Act, 2010, with effect from 24-5-2010] is Rs. 10,00,000.

32. Substituted for “calculated on the basis of the average salary for the three years immediately preceding the year in which the gratuity is paid, subject to a maximum of *thirty-six thousand rupees or twenty months’ salary so calculated, whichever is less” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

*Substituted for “thirty thousand rupees” by the Finance Act, 1983, w.r.e.f. 1-4-1982.

 33 Rs. 10,00,000 has been specified as the limit in case of retirement, etc., on or after 24-5-2010 vide Notification No. SO 1414(E), dated 11-6-2010

35 . Substituted for “shall not exceed *thirty-six thousand rupees” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

*Substituted for “thirty thousand rupees” by the Finance Act, 1983, w.r.e.f. 1-4-1982.

36 . Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Original third and fourth provisos were inserted by the Finance Act, 1983, w.r.e.f. 1-4-1982.

37. Substituted for “In this clause” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

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