Skip to main content

Tax Free Gratuity limit is set to Rs 20 Lakh


Tax-free gratuity withdrawal limit to be Rs 20 lakh

The tax exemption limit on gratuity is set to increase to Rs20 lakh




Recently, the Ministry of Labour and representative of state governments, employees and employers agreed to increase the gratuity withdrawal limit to Rs20 lakh from the current ceiling of Rs10 lakh. The tax exemption limit on gratuity is also set to increase to Rs20 lakh. Mint had earlier reported that a labour ministry spokesperson had said on 23 February that all the stakeholders-states, Centre, trade unions and industry representatives-were in agreement over enhancing the gratuity ceiling from Rs10 lakh to Rs20 lakh. Once this gets implemented, employees will have access to a larger amount of tax-free gratuity.

Here is how the math works



Who gets Gratuity
Gratuity is part of an employee's salary but it is not paid every month. It is paid to the employee either at the time when she leaves the job or at the time of retirement; provided she has completed at least 5 years of employment with the employer. In case of death of the employee, the amount is paid to the employee's family, irrespective of the employment period. Under Payment of Gratuity Act, 1972, any establishment (factory, mine, oilfield, plantation, port and railway company, or shop) having more than 10 employees at any point of time in the last 12 months, is required to provide gratuity to its employees.

Tax Liability
Under the income-tax Act, gratuity is taxed under the head 'income from salaries'. The portion of salary received as gratuity can be exempt from tax under section 10(10) of the Income-tax Act, 1961, depending on various factors. But if gratuity is received by an employee of central, state or a local government agency, it is fully exempt when withdrawn on death or retirement.

Under the current regime, where the Payment of Gratuity Act is applicable, the least of the following received by the employee is exempt from tax:

-Rs 10 lakh,

-actual gratuity received,

-15 days' salary, based on the salary last drawn multiplied by the number of years in employment.

To calculate 15 days' salary, the last drawn salary is divided by 26 and the number is multiplied by 15. Here, salary includes basic salary and dearness allowance, if any.

Let us take the case of an employee who has worked for 25 years with an employer and her last-drawn salary was Rs1 lakh per month. Let us assume her total accumulated gratuity amount was Rs15 lakh. In this case, she can claim Rs10 lakh as tax-free gratuity.

This would be so because Rs10 lakh (maximum allowed) is the least of the other two options: Rs15 lakh (gratuity receivable) and Rs14,42,307. The latter figure is arrived at by the following computation: (((1,00,000/26)*15)*25).

The remaining Rs5 lakh (Rs15 lakh minus Rs10 lakh) can be given by employer as ex gratia or performance bonus; this would be taxable.

However, after the limit is extended to Rs20 lakh, the least amount for this employee would no longer be Rs10 lakh, it would be Rs14.42 lakh, and instead of paying tax on Rs5 lakh, she would have to pay tax on Rs58,000 (Rs14.42 lakh minus her total gratuity entitlement).

Under the current rules, in cases where employers are not covered under the Payment of Gratuity Act, then the minimum of the three-Rs10 lakh, actual gratuity received or half month's salary for each completed year of service-is exempt from tax. Salary is taken as the average salary of 10 months immediately before the month in which the person retires. This may change once the Act is amended.



------------------------------------
Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds

Top 4 Tax Saver Mutual Funds for 2018

Best 4 ELSS Mutual Funds to invest in India for 2018

1. Tata India Tax Savings Fund

2. DSP BlackRock Tax Saver Fund

3. Invesco India Tax Plan

4. BNP Paribas Long Term Equity Fund



Invest in Best Performing 2018 Tax Saver Mutual Funds Online

Invest Best Tax Saver Mutual Funds Online

Download Top Tax Saver Mutual Funds Application Forms


For further information contact SaveTaxGetRich on 94 8300 8300

------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

OR

Call us on 94 8300 8300

------------------------------------


Popular posts from this blog

BHIM App

What is BHIM? BHIM stands for Bharat Interface for Money , which is an easy way of transferring money from one bank account to an other via a smartphone using the Unified Payments Interface (UPI) platform . It is an instant payments application meant for sending money as well as requesting for payments. How is it different from UPI? BHIM is no different than UPI. But in the case of BHIM, customers don't have to download mobile applications of multiple banks, instead a single BHIM app downloaded from Android Play Store is sufficient. Other than that, payments can be made through a virtual payments ID or through account number and IFS code, same as UPI. What you need to use BHIM? BHIM can be used across an droid smartphones with version 4.0 and above, also it will be made available on iPhones and Windows smartphones very soon. Further, for feature phone users they need to use the USSD feature by dial ing *99#. Why was the need for BHIM felt when UPI is already in place? With various...
Read more

NPS for Tax Saving

The NPS is a great way to save tax if you don't mind locking in your money till you retire. Till last year, the taxability of the NPS was a big issue. But last year's Budget changed the rules and made 40% of the corpus tax free. The PFRDA wants that the balance 60% to be exempt from tax as well. The emphasis is on increasing pension coverage. So, allowing EEE status (to NPS ) is our major demand (in the Budget NPS is especially useful for investors who may have exhausted the `1.5 lakh investment limit under Section 80C but want to save more.   Another way the NPS can cut tax is by rejigging the salary.If a company deposits up to 10% of the basic salary of an employee in the NPS under Section 80CCD(2d), the amount will be tax free. Turn to page 28 to see how much tax this can save. However, the take-home pay of the employee will come down. Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 10 Tax...
Read more

Retirement planning from a long-term perspective

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds     `HOW green was my valley'. This title comes from a movie I had watched many years ago. A little boy's journey into adulthood and the story of a Welsh valley's turn of-the-century descent from pristine paradise to despoiled coal mining.   I thought of the title because it is comparatively reflective of a person's life ­ the glorious years when he is earning and the sun down years when he is not having his regular job and, hence, his living standards comes down. The reason is a combination of things. Inflation of food items, transport, increase in health related costs in the later years of life and increase in expenses in almost all basic amenities of life. In India, the social security system is almost non-existent. In some states, wherever it is available, the scales of benefits are extremely modest...
Read more

SBI Long Term Advantage Fund Series

Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds Top 10 Tax Saver Mutual Funds for 2017 - 2018 Best 10 ELSS Mutual Funds to invest in India for 2017 1. DSP BlackRock Tax Saver Fund 2. Invesco India Tax Plan 3. Tata India Tax Savings Fund 4. ICICI Prudential Long Term Equity Fund 5. Birla Sun Life Tax Relief 96 6. Franklin India TaxShield  7. Reliance Tax Saver (ELSS) Fund 8. BNP Paribas Long Term Equity Fund 9. Axis Tax Saver Fund 10. Birla Sun Life Tax Plan Invest in Best Performing 2017 Tax Saver Mutual Funds Online Invest Best Tax Saver Mutual Funds Online Download Top Tax Saver Mutual Funds  Application Forms For further information contact  SaveTaxGetRich on 94 8300 8300 ------------------------------ ------ Leave your comment with mail ID and we will answer them OR You can write to us at Invest [at] SaveTaxGetRich [dot] Com OR Call us on 94 8300 8300  
Read more

BIRLA SUN LIFE MIDCAP Fund

BIRLA SUN LIFE MIDCAP Fund Online This fund suffered an extended lean patch after the 2008 financial crisis but, of late, it has shown signs of improvement in its performance. It is biased towards mid-caps but takes a sizeable exposure to large caps. The fund is very conscious of the risk involved in playing this segment and has a conservative approach. It strictly avoids concentration risk and runs a highly diversified portfolio that does not allow large positions even in its top stock picks. The fund manager, at times, gives higher importance to macro factors in portfolio construction than company specifics, often drilling down to sub-sectors for finding opportunities. The approach is yet to be fully tested, so investors should wait and see how the performance pans out over the next year or more. For further information contact  SaveTaxGetRich on 94 8300 8300 OR You can write to us at Invest [at] SaveTaxGetRich [dot] Com OR Call us on 94 8300 8300
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now