The process of taxation of gratuity is dependent on the receiver of the gratuity amount. There are 2 main cases for the same:. When a government employee receives the gratuity amount: If the employee works under the state or central government or local authority and receives gratuity, then his gratuity amount is fully exempt from income tax. Forfeiture: The employer can forfeit the payment of gratuity, as per the Payment of Gratuity Act of This can be partial or whole even if the employee completes 5 or more years of service in the company.
This can happen if the employee has to be terminated owing to his disorderly conduct when he physically harms people during his service. Initiation: The employee must send the application to the employer w. Acknowledgement and calculation: Once the application is received, the company that owes the gratuity calculates the amount and then provides a notice to the employee and controlling authority with the specified amount. Disbursal: The employer has a timeframe of 30 days for paying the gratuity amount, after sending the acknowledgement.
Tax exemptions: Certain policy changes made in the budget have caused the gratuity laws to change a little. Here are the key highlights:. As per Article 10 10 i of the Income Tax Act, gratuity that is received by government employees, besides statutory corporations, is fully exempt from tax.
As per Article 10 10 ii of the Income Tax Act, retirement and death gratuity receivable by the employee under the act is the least amount of the below options, which is exempt from tax:. This excludes benefits such as HRA, bonus, commission etc. As per Article 10 10 iii of the Income Tax Act, the exemption of the gratuity amount that is received by employees not covered under the act is as follows:.
Another point to note is that if the employee dies, his nominee or heir gets the gratuity amount. While receiving gratuity from an employer, if the amount exceeds INR 10,00,, then the tax exemption in this case is to be calculated based on the points highlighted under the taxation section above.
An employer can reject the gratuity payment of an employee if they have been told to leave the organization owing to their misconduct. If the employee dies, the gratuity amount is paid to their heir or nominee. However, tax has to be calculated for this too, under the head Income From Other Sources.
INR 10 lakhs is the maximum cap of receiving gratuity. The company cannot pay you an amount higher than that as gratuity even if you have completed more number of years in the company. This maximum cap defines the highest limit that is payable to you by different employers throughout your work-span. If a company still decides to pay you an additional sum of money, they can do so in the form of bonus or ex-gratia. If the amount of gratuity payable under the section is not paid by the employer within the period specified, it will have to pay simple interest on it from the date on which the gratuity becomes payable at the rate not exceeding the rate stipulated by the federal government.
Gratuity should be paid in cash or, if so desired by the payee, by demand draft or bank check to the eligible employee, nominee, or legal heir. In order to forfeit gratuity of an employee, there must be a termination order containing charges as established to the effect that the employee was guilty of any of the aforesaid misconducts.
In one case, it has been held that in the absence of a termination order containing any of the above allegations, the gratuity of an employee cannot be forfeited. This article was first published on China Briefing.
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Click on 'Tax Tools' option and search Gratuity from the available options. The given calculator will compute the amount of gratuity payable with respect to the input values such as assessment year, type of employer, gratuity received, exempted gratuity and taxable gratuity.
In this formula, the time period of more than six months is considered as one year. Simply Save Know how to deal with unfair claim rejection. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express writtern permission of moneycontrol.
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Please Re-confirm Your. Get Loan Online Apply Now. Apply Now. What is Gratuity? Earn High Returns on FD. Compare FD Rates. Apply Loan Online. Timeline for gratuity payment: The three important points involved in gratuity payment have been listed below: Initiation: An individual must send an application to the employer regarding the gratuity they are owed by a company. Acknowledgment and calculation: Once the application has been received by the employer, the company will calculate amount and send reply to the individual and the controlling authority with the amount specified.
Disbursal: The employer has a time period of 30 days to pay the gratuity amount after sending the acknowledgment. Who is Eligible for Gratuity? The individual must have resigned from the job after continuous employment with the organization for five years.
To calculate how much gratuity is payable, the Payment of Gratuity Act has divided non-government employees into two categories: a Employees covered under the Act: For this category, a formula is used to calculate the gratuity payable to the employees.
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