Is Gratuity Tax-Free?

How is Gratuity Calculated and Is it Tax-Free?

Gratuity so payable is given to the representative when he/she satisfies the criteria of proceeded with benefit for a long time or more for superannuation or resigns or leaves and on the off chance that a worker kicks the bucket or builds up some inability inferable from mischance or ailment, the measure of Gratuity is payable paying little respect to residency.

Gratuity and GST

How is Gratuity Calculated and Is it Tax-Free? Picture for representation.

Gratuity is one of the advantages that a worker is qualified for at the season of his retirement and is being paid as a singular amount measure of cash that acquires from the business’ assets. The arrangements relating to tip are secured under the Payment of Gratuity Act, 1972.

Under this demonstration, Gratuity is accessible to all representatives who are working in any office which have no less than at least 10 than ten representatives and incorporates production lines, mines, oilfields, ranches, ports, railroad organizations, shops, and so on. Gratuity is payable to just lasting workers.

In any case, the main pre-essential to assert tip is that the representative ought to have been wor Gratuity Calculated ruler for the business for a time of least 5 years yet bars those situations where the worker has kicked the bucket or has built up a handicap attributable to mischance or disease.

Tip so payable is given to the representative when he/she satisfies the criteria of proceeded with benefit for a long time or more for superannuation or resigns or leaves and in the event that a worker kicks the bucket or builds up some inability attributable to mischance or disease, the measure of Gratuity is payable paying little mind to residency. The measure of Gratuity is paid to the representative inside 30 days from the date of being issued to the individual qualified for it. On the off chance that, there is any postponement or default the business should pay enthusiasm on such sum.

How to Calculate Gratuity?

Gratuity is computed by utilizing the accompanying equation –

Gratuity = Last Drawn Salary (Basic + DA) × 15/26 × No. of Years of Service (rounded off to the full year)
Where 15/26 = 15 working days out of a total of 26 per month

Where 15/26 = 15 working days of an aggregate of 26 every month

On the off chance that it is demonstrated that the workers’ administrations were fired on the grounds of good turpitude over the span of authority business or any demonstrated wrongdoing on the representatives’ part, will prompt the relinquishment of his tip sum totally.

Gratuity is not so much tax-exempt yet a specific sum is exempted from imposing. Prior, in April 2010 such exempted sum was ₹3.5 Lakhs, however then was expanded to ₹10 lakhs. As indicated by this, in spite of having reserved a sum more noteworthy than ₹10 Lakhs as Gratuity, the measure of tax-exempt withdrawal can’t surpass ₹10 Lakhs after which the assessments are deducted from the rest of the sum, and the sum that is (if) left after conclusion of duties is paid to you under the head ‘Wage from Salaries’.

In any case, the Payment of Gratuity (Amendment) Bill, 2017 is good to go to be presented in the Parliament and goes for expanding this exempted add up to ₹20 Lakhs tax-exempt tip from the aggregate sum of tip which implies that now just that tip sum will be liable to charges that surpasses ₹20 Lakhs which will bring about the workers taking a higher measure of tip.

The Tax-exemption on Gratuity is calculated on the lowest amount from this three

1. Upper Limit of Tax-Free Gratuity

2. Actual Gratuity Received

3. Gratuity Calculated as per the Formula: Gratuity = Last Drawn Salary (Basic + DA) × 15/26 × No. of Years of Service (rounded off to the full year)

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Certicom Consulting [ Kedia Arpana & Co ] is a group of Chartered Accountants in the business of Small Business Setup & Statutory Compliance including for Professionals for the past 15 years. We have been an established and popular company with an excellent track record for the best customer satisfaction.

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Certicom Consulting

Certicom Consulting [ Kedia Arpana & Co ] is a group of Chartered Accountants in the business of Small Business Setup & Statutory Compliance including for Professionals for the past 15 years. We have been an established and popular company with an excellent track record for the best customer satisfaction.

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