Income Tax on Gratuity Payment, Service Period is 4 years

Dear Friends,

Our management had decided to Pay Gratuity to employee in Full and Final.
However, employee service period tenure is 3 years and 8 months.

Please advice us will Gratuity payment (for 4 years) would be taxable, if we are paying before 5 years.

2 Likes

Income Tax is based on the total Gratuity payable (whether is exceeds x amount) and not on the number of years. Employer can take a call whether to pay before 5 years completion or not. So if the amount is less than 20L, I think, the person receive tax exemption.

3 Likes

Hi,

Gratuity is taxable only if it exceeds a consolidated amount of Rs.20L, either received in a single payment or received from various companies during an employee’s career span. That is the only criteria. Trust this helps.

4 Likes

If gratuity paid is not according to the provisions of The Payment of Gratuity Act 1972 then it will be treated as taxable .

3 Likes

Thank You for the guidance.

2 Likes

Interesting. But Gratuity Act/Rule enforces mandatory payment of Gratuity when an employee exits upon completion of 5 years. There is no clause like “not to pay before 5 years” and hence the company management can take a call, right? Expecting further opinion from more members.

3 Likes

Appreciate your guidance and help.

2 Likes

If a company pays , it could be accounted as ex gratin, unless the. Gratuity Trust Deed contains a more. Favourable clause.

3 Likes

Standards of conditions of employment prescribed by any labor law are minimal only. It is, therefore, either the bargaining power of labor in the process of collective bargaining or the magnanimity of an employer which gives rise to determination of better benefits or higher scales for calculation of monetary benefits than those prescribed under any labor law. In my own experience as a Conciliation Officer, the dead lock in the wage revision negotiation affecting 3000 employees due to the egoistic stand of the management and the trade unions was resolved at last by the suggestion to the formula of 20 days wages for every completed year of service. Besides, section 4(5) of the Payment of Gratuity Act explicitly permits receipt of better terms of gratuity under any award or agreement or contract between the parties.
Coming to taxability of the amount received by way of gratuity under the PGA,1972, Section 10(10) of the Income Tax gives exemption up to a maximum amount of Rs 20 lakh. So long as the amount falls below the ceiling, my opinion is that we need not bother about the calculation or the minimum no of years of service on termination.

1 Like
Powered by | India's No.1 Payroll and HR Software.
9000+ Clients
150 Cities
10 Lakh+ Users