Whether gratuity is taxable under Indian Income Tax?
Gratuity can be received by the employee at the time of his
retirement or by his legal heir in the event of death of the
employee. Gratuity received by an employee on his retirement is
taxable under the head "Salary" and gratuity received by the legal
heir is taxable under the head" Income from Other Sources".
In both the above situations gratuity upto a specified limit is
exempt under the provisions of sec.10(10) of the Income Tax Act,
1961.
For the purpose of exemption of gratuity under sec.10(10) the
employees are divided under three categories: # Govt. employees -
In the case of govt. employees the entire amount of
death-cum-retirement gratuity is exempt from tax and nothing is
therefore taxable under the head Salaries. #* The amount of
gratuity actually received. #* Fifteen days' salary (7 days in the
case of seasonal employment) for every completed year of service
provided the employment is more than six months. # Employees
covered under the Payment of Gratuity Act, 1972 - The employees
covered under the Gratuity Act who receive gratuity have been given
exemption which is the minimum of the following amounts. Gratuity
received in excess of the minimum of the amounts mentioned below is
included in the gross salary for the purposes of taxation. #*
Actual amount of gratuity received. #* Half month's average salary
for every completed year of service. (Average salary means the
average of the salary drawn by the employee for 10 months
immediately preceding the month in which he retires) # Other
employees - In the case of other employees the gratuity received or
receivable on his retirement or on his becoming incapacited prior
to such retirement or termination of his employment or any gratuity
received by his heirs is exempt to the extent of the minimum of the
following amounts. The amount received in excess of the sums
mentioned below is included in the gross salary of the employee for
the purposes of taxation.