Taxability of Gratuity for Private Sector Employees|Gratuity Act.
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Taxability of Gratuity for Private Sector Employees Not Covered Under Gratuity Act.

Payment of gratuity for prolonged term of service by an employee is a retirement benefit which is compulsory from enactment of the Gratuity Act, 1972. If the employee is not covered by payment of Gratuity Act then he can obtain benefit of Gratuity under terms of employment. This article explains taxability of Gratuity received by private sector employees who are not covered under Gratuity Act.

When employee receives gratuity under terms of employment then he is not covered under Gratuity Act. From the 3 conditions mentioned below, the amount which is the lowest is exempt from tax.

  1. Half month’s average salary for each completed year of service.
  1. Maximum exemption limit is of Rs.10,00,000/- in a lifetime.
  1. Actual Gratuity received at the time of retirement

After exemption, the balance amount is taxable. Other key considerations while calculating tax exemption for employees not covered by payment of Gratuity Act are as follows:

  1. For calculating length of service, fraction of a year shall not be ignored. Only completed years of service is considered.
  1. Average monthly salary is calculated on the basis of average salary of 10 months, immediately preceding the month in which employee retires.
  1. Salary includes Dearness Allowance while computing retirement benefit. Commission paid on a fixed percentage of turnover is also included in the salary.
H&R Block India
H&R Block India
H&R Block India is the subsidiary of the world's leading tax filing company, H&R Block, US. In India we provide online and personalised tax filing services for individuals, professionals and businesses. We also provide managed services for GST.

1 Comment

  1. Nagendra says:

    The Gratuity received is mentioned under the head salaries and it is taxed. Now how to mention this as deduction in ITR forms?

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