If you want to know more about if gratuity comes under 80C, then you will get all the information here
Gratuity is a lump-sum amount paid to the employee for their services. The employers offer a token of appreciation for sticking around with the company for at least five years or more. Not many of us are very good with our finances when it comes to savings, which is still acceptable. Finance is an inclusive term, and multiple layers are attached to it. Of course, tax is one of finance’s most significant components. Sometimes we do not understand the issue associated with it due to a lack of knowledge. Will you not mind if you end up paying tax for something you could have avoided? Every government has its own taxation rules. The government makes such guidelines, rules, and regulations, keeping the people’s interests and financial well-being in mind. Hence, this is where the word ‘Exemptions’ comes into the picture. 80C is a section introduced by the government hat involves the exemption of a few amounts, and gratuity has a major role to play in it. But, as per the latest laws by the government, individuals or business people cannot claim gratuity under 80c anymore, although they could do it earlier, which made the lives of the individual easier. There are multiple exemptions there, specially made by the government.
Eligibility Criteria to Get the Gratuity
Following the criteria, you will get a gratuity.
- You must be entering continuous service for at least five years.
- It would be best if you had resigned or retired.
- You should be eligible for superannuation.
Gratuity Payment
Any person on an electric bill for gratuity is provided their gratuity on retirement resignation. But in case of the demise, the nominee would be given the gratuity.
Income Tax Exemptions Available On Gratuity
Income tax exemptions will be given if you fall under the Gratuity Act 1972. You can take the example given here. Suppose you are working in a railway plantation port or even an educational institution. In that case, you can get gratuity provided your company has at least ten employees or more in the previous year. The employee who becomes eligible for this act can always be entitled to this even if the employee number goes below 10. The formula includes the last salary you have withdrawn plus the Dearness allowance into the employment duration of 15 / 26. It also includes INR 20,00,000; currently, it is INR 10,00,000. For example, if you are a professor having a monthly salary of 1,20,000, which includes your basic and dearness allowance. If you have worked with the institution for 18 years and 18 months, you will get 12,50,000 as gratuity. If you are calculating the previous amendment, your employment storm will be rounded off to 19 years, and even the gratuity would be calculated as 1,20,000 * 19 * 15 / 26, which will be 13,15,385. The maximum dearness allowance will be 10,00,000, while the gratuity received will be 12,50,000. The taxable gratuity would be 2,50,000. If you consider the new amendment, then your gratuity amount will be 1,20,000 * 19 * 15 / 26, which comes to 13,50,385, and the maximum exemption allowed would be 20,00,000 INR, while the gratuity you would receive would be 12,50,000, so there would be no tax exemption under the new rule.
It Exemptions for Employees Who Are Not Covered Under the Payment of the Majority Act
Even if your company does not cover you under the Payment Majority Act, you don’t need to worry because no such law prohibits your employer from paying you the gratuity. Employers can easily calculate the gratuity amount based on your half-month salary for every year completed. The gratuity amount calculation includes. The average salary for the last ten months, which includes your basic salary and dearness allowance in 2 years of employment, is half. The maximum amount here is 10,00,000 only because the hike of INR 20,00,000 is not available for employees who do not fall under the act. It includes the gratuity received by the employee. For example, if you’re an employee working for the company for 21 years and seven months and your average salary for the past ten months is 1,00,000, the gratuity you can receive is INR 12,00,000. The gratuity amount you will receive equals 1,00,000 * 22 into half, which equals 11,00,000. The maximum exemption amount is ten lacs, while the gratuity you would receive would be 12,00,000, so the gratuity taxable would be INR 2,00,000.
The number of years is always rounded off to the next full year.
The Maximum Amount Which Is Payable as Gratuity
The maximum payable amount is INR 20,00,000 for individuals covered under the act. But if the individual is not covered under the act, then they will get INR 10,00,000. Income tax will be levied on the excess amount if the amount exceeds the gratuity.
Income Tax on Gratuity Payment
Gratuity is mainly considered a part of the income, so it is taxable by the law. If your nominee receives the gratuity due to your death, then the amount would be taxed under the head of income from other sources.
Hence the latest amendment to the ceiling limit of gratuity majorly helps the people who have a higher salary bracket. The gratuity is always considered as 15 by 26 as 26 is the estimated number of working days in a month, and 15 represents the salary for the 15 working days in any month. Gratuity would never be considered part of your CTC because it is an additional token of appreciation that your employer offers.
Conclusion
If you earn the gratuity, then there will be no tax for you if you are a government employee, but if you are from the private sector, then the gratuity earned will be taxable. Vakilsearch is the one-stop destination when it comes to looking for the best legal expert for understanding gratuity.
There are multiple ways to be able to save your income from taxes, and it is the experts who could be of great help in this process. Make sure to reach out to the professionals of Vakilsearch at the earliest without any delay.
