Death cum Retirement Gratuity [sec.10 (10)]
Government employees: any death cum retirement gratuity received by all categories of government employees is totally exempt
(Death cum retirement gratuity received by employees of a local authority or life insurance corporation is also exempt under this section)
Gratuity received under Payment of Gratuity act, 1972.
Gratuity received under the payment of gratuity act is exempt to the extent of amount calculated under the following method
Least of the following shall be exempt:
i. 15 day’s salary (7 days in case of seasonal establishment)for each completed year of service or part thereof in excess of six months on the basis of salary last drawn; or
ii. Rs 10,00,000;or
iii. Gratuity actually received.
Explanation;
15 days salary is calculated by using the formula:
last month salary X 15/26
Here;
Salary includes Basic salary and dearness allowance.
The amount computed by using 15 days formula is multiplied with number of years employee worked in the organization.(years in which employee worked in excess of six months is also taken as completed year of service)
Gratuity not covered under Payment of Gratuity act, 1972.
Least of the following shall be exempt:
i. ½ month salary for each completed year of service; or
ii. Rs 10,00,000;or
iii. Gratuity actually received.
Explanation;
Only complete years of service will be taken for computing number of completed years of service
½ month salary means half of average salary of ten months immediately preceding the month in which the event occurs
Here;
Salary includes Basic salary, dearness allowance (if it given as per terms of employment) and commission based upon fixed percentage of turnover achieved by employee.
Note: if the actual amount of gratuity is the least amount, then the total amount of gratuity received is exempt
If the employee receives gratuity from more than one employers then the aggregate amount of exemption shall not exceed the maximum absolute limit i.e., rs 10, 00,000
Sample;
Q:
Mr. Abhishek receives gratuity of rs 1, 25,000 covered under payment of gratuity act, 1972.details regarding his service and last drawn emoluments are as under:
Period of service:19 years and 9 months
Basic salary : 14000 P.M
Dearness allowance : 2000 P.M
Bonus : 2500
A:
least of the following is exempt:
| 15 days salary for each completed year of service or part thereof in excess of six month [(salary+ DA X 15/26) X completed years of service ] | [(16000X15/26) X 20] =1, 84,615 |
| Maximum limit | 10,00,000 |
| Gratuity actually received | 1,25,000 |
Here the least amount is the actual amount of gratuity received (1, 25,000), hence total amount of gratuity is exempt.