Taxation of Gratuity taxable on superannuation?

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Taxation of Gratuity taxable on superannuation?

Is gratuity taxable on superannuation?
Gratuity is one of the most important elements of retirement benefits. It is considered as a retirement benefit and is exempt from income tax subject to certain conditions of the Income Tax Act. For the intent of taxation on gratuity, employees are divided into two categories:
  1. Government employees
  2. Private sector employees
When gratuity is received by an employee at the time of superannuation, the tax exemption rules for government employees differ from private ones.
In the case of the former, the entire gratuity amount received on retirement or death is exempt from income tax.
In the case of private employees, they are divided as:
  1. Private employees covered under the Payment of Gratuity Act of 1972.
  2. Private employees not covered under the Payment of Gratuity Act of 1972
Private employees covered under the Payment of Gratuity Act of 1972.
Where private employees are covered under the Payment of Gratuity Act of 1972, any gratuity received is tax-exempt to the extent of least of the following:
  1. The statutory limit of Rs 20 lakh. (maximum limit notified by the government)
  2. Last drawn salary x 15/26 x No. of completed years in service
  3. Actual gratuity: If the gratuity exceeds this limit, it is taxable.
For private employees not covered under the Payment of Gratuity Act of 1972:
Any gratuity received is tax-exempt to the extent of least of the following:
  1. The statutory limit of Rs 20 lakh
  2. Average salary x ½ x No. of years in service
  3. Actual gratuity received
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