15. Gratuity [Section 10(10)]
(i) Death-cum-retirement gratuity—anysuch amount received by the employees working on Civil or Defence services of Govt. of India, or on any part of State Govt. or Local authority covered under Revised Pension Rules of the Central Govt. shall be fully exempted.
(ii) Gratuity received under Payment of Gratuity Act—shall be exempted upto an amount as calculated in accordance with the provisions of such Act.
(iii) For other employees—Exemptedupto least of the following
Statutory Limit ` 10,00,000 (Notification No. S.O. 1217(E) dated 24-5-2010).
1/2 month’s average salary for every one completed year of service
Actual gratuity received.
Average Salary. : The Direct Tax Laws (Amendment) Act 1987 has revised the definition of average salary. In future average salary is to be calculated on the basis of average of salary received during 10 months preceding the month in which death or retirement occurs.
Statutory Limit. : The present ceiling of ` 10,00,000 is applicable for whole service life of an employee. With effect from assessment year 1989-90 the monetary ceiling will be such limit as the Central Government may by notification in the Official Gazette specify in this behalf keeping in view the limit applicable to Central Government employees.
Salary. : The word ‘salary’ here has the same meaning as assigned to it for provident fund purposes, i.e., the Basic Pay plus dearness pay plus any portion of D.A. which enters into pay for service benefits.
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 [Section 10(10B)]
The Finance Act, 1975 has inserted a new clause 10B in section 10 of Income-tax Act which provides that retrenchment compensation received by a workman shall be exempted from Income-tax to the extent such compensation does not exceed
- amount calculated in accordance with the provisions of Section 15F(b) of the Industrial Disputes, Act, 1947,
- ` 5,00,000,
whichever is less.
This exemption will be available only to workmen as defined in Industrial Disputes Act, 1947.