I have retired from a government job. Do I have to pay income tax on gratuity money received?
Gratuity is paid by the employer as part for gratitude for acknowledging the employers long standing meritorious service. Gratuity received by any government employee is fully exempted from income tax. So you do not have to worry about any income tax liability for the funds you may have received as gratuity. For a non government employee covered by the payment of gratuity act of 1972, the least of the 15 days salary based on the last drawn salary for each year of service, minimum exemption limit of Rs. 3.50,000 or the total gratuity received gets exemption from income tax.
Gratuity payment is a lump sum that your company will pay you as an acknowledgment of your loyalty to the company. Naturally, gratuity becomes payable only after you have spent a certain number of years with the company. You will receive this benefit either at the time of retirement or when you resign from employment. Let us take a look at how gratuity benefit is paid.
According to the law, the amount payable as gratuity is equivalent of half month’s salary for every full year of your employment or Rs. 20 lakhs, whichever is lower. This is the minimum amount payable under the law. This will be applicable to private sector and public sector employees. Some companies may pay a higher amount. This upper limit depends upon the company’s policy.
The least of the following amounts will be exempt from tax:
• Last salary (basic salary plus dearness allowance) * number of years of employment * 15/26, or
• Rs. 20,00,000, or
• Gratuity amount received.
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