15. Gratuity [Section 10(10)]
A. Death-cum-retirement gratuity received by Government servants [Section 10(10)(i)]
Section 10(10)(i) grants exemption to gratuity received by Government employee (i.e., Central Government or State Government or local authority).
B. Gratuity Received by a Non-Government Employee covered by Payment of Gratuity Act, 1972 [Section 10(10)(ii)]
As per section 10(10)(ii), exemption in respect of gratuity in case of employees covered by the Payment of Gratuity Act, 1972 will be lower of following :
15 days’ salary × years of service.
Maximum amount specified, i.e., Rs. 10,00,000.
Gratuity actually received.
1) Instead of 15 days’ salary, only 7 days salary will be taken into consideration in case of employees of seasonal establishment.
2) 15 days’ salary = Salary last drawn × 15/26
3) Salary for this purpose will include basic salary and dearness allowance only. Items other than basic salary and dearness allowance are not to be considered.
4) In case of piece rated employee, 15 days’ salary will be computed on the basis of average of total wages (excluding overtime wages) received for a period of three months immediately preceding the termination of his service.
5) Part of the year, in excess of 6 months, shall be taken as one full year.
C. Gratuity Received by a Non-Government Employee Not covered by Payment of Gratuity Act, 1972 [Section 10(10)(iii)]
As per section 10(10)(iii), exemption in respect of gratuity in case of employees not covered by the Payment of Gratuity Act, 1972 will be lower of following :
Half month’s salary for each completed year of service, i.e.,[Average monthly salary × ½] × Completed years of service. .
Gratuity actually received.
1) Average monthly salary is to be computed on the basis of average of salary for 10 months immediately preceding the month of retirement.
2) Salary for this purpose will include basic salary, dearness allowance, if the terms of service so provide and commission based on fixed percentage of turnover achieved by the employee.
3) While computing years of service, any fraction of a year is to be ignored.
16. Commuted value of pension received [Section 10(I0A)]
(i) The full amount of commuted value of pension received is exempted if it is received from the Government, a local authority or a statutory corporation.
(ii) Any payment in commutation of pension received under any scheme from any other employer to the extent it does not exceed
in a case where the employee receives any gratuity, the commuted value of 1/3rd of pension which he is normally entitled to receive ; and
in any other case the commuted value of 1/2 of such pension.
17. Amount received as leave encashment on retirement [Section 10(10AA)]
(a) Central & State Govt. Employees—any payment received as the cash equivalent of the leave salary in respect of the earned leave at his credit at the time of his retirement shall be fully exempt.
(b) Other Employees—any payment received as the cash equivalent of the leave salary at his credit at the time of superannuation shall be exempt upto least of the following four amounts
(a) Actual amount received
(b) Amount calculated at average salary of 10 months (average salary means average of salary drawn by employee during 10 months immediately preceding the month of his retirement);
(c) Cash equivalent of leave salary due at the time of retirement.
(d) Notified Limit—` 3,00,000.
Excess of amount received over the least of the above shall be taxable.
18. Retrenchment compensation paid to workmen [Section10(10B)]
As per section 10(10B), compensation received at the time of retrenchment is exempt from tax to the extent of lower of the following:
(a) An amount calculated in accordance with the provisions of section 25F(b) of the Industrial Dispute Act, 1947; or
(b) Maximum amount specified by the Central Government (Rs. 5,00,000);
(c) Actual amount received.
Under the Industrial Dispute Act, a workman is entitled to retrenchment compensation, equal to 15 days’ average pay for each completed year of continuous service or any part in excess of six months.
Compensation in excess of aforesaid limits is taxable as salary. However, the aforesaid limit is not applicable in cases where compensation is paid under any scheme approved by the Central Government