Income Tax Exemption for Gratuity Doubled
Generally, gratuity is a small amount which people pay for the services they render. It is also known as a tip. It can also be defined as a sum of money which an employer pays to the employee for services rendered during his employment period. An employee is entitled to gratuity if he completes 5 or more years with the company as per the Payment of Gratuity Act. Usually gratuity is paid at the time of retirement; however, it can also be paid before retirement (if certain conditions are fulfilled). It is considered as one of the retirement benefits.
The gratuity is payable at the time of employee’s retirement or retrenchment (removed while downsizing), death and/or physical disability caused by a disease or an accident. The organization which has 10 or more employees is liable to pay gratuity under the Gratuity Act. It is calculated on the basis of the service period and the last drawn salary.
Tax benefits of gratuity:
All government employees are relieved from paying taxes on gratuity. The total amount received by them is exempted from taxes. As for non-government employee, the Payment of Gratuity Act stated exemptions on-
- Actual gratuity
- Total gratuity of 20 lakh (earlier 10 lakh)
- Fifteen-day basic and DA for each year that is completed of service or part of It in excess of six months
Gratuity Limit Extended:
The Parliament passed the bill which empowered the government to change the tax-exempted gratuity amount and period of maternity leave. The day came bearing good news which made the employees in both government and private sector joyful. Under the Payment of Gratuity Act, the ceiling of tax-free gratuity was 10 lakh and now it is enhanced to 20 lakhs. To put it simply, an individual is not liable to pay any taxes if he receives the gratuity amount up to or below 20 lakhs.
The government is also allowed to fix the period of maternity leave for female employees who are in continuous service in any particular establishment for a minimum of 12 weeks. Since the 7th Pay Commission has been implemented, the gratuity amount for private and public sector employees is doubled to 20 lakhs.
For now, the gratuity is amount is free from any taxes. The latest bill by the Parliament is significant for the middle level as well as senior management who are receiving higher pay. With the gratuity ceiling raised, they can enjoy the gratuity amount free from any taxation.
“Income Tax Exemption for Gratuity under Section 10(10) (iii) of the Income Tax Act has been enhanced to Rs 20 lakh. Would benefit all PSU employees and other employees not covered by the Payment of Gratuity Act,” Finance Minister Arun Jaitley said in a tweet. (Source: economic times)
Finance Minister Arun Jaitley made this tweet sharing the good news for PSU and other employees, a sigh of relief for the employees.