Taxable Amount of Gratuity for Mr. Nagraj (A.Y. 2024-25)
Question Summary:
Mr. Nagraj retires on 25 December 2023 from ABC Ltd. He is not covered under the Payment of Gratuity Act. He served for 36 years and 9 months and received ₹5,00,000 as gratuity. His salary was ₹6,000 per month up to June 2023 and ₹7,000 thereafter. D.A. is ₹1,000 per month (70% considered for retirement benefits).
Step-by-Step Calculation of Taxable Gratuity
Since Mr. Nagraj is not covered under the Payment of Gratuity Act, the least of the following three is exempt under Section 10(10)(ii):
- Actual Gratuity Received = ₹5,00,000
- ₹20,00,000 (Statutory Limit)
- Half month’s average salary × completed years of service
Step 1: Calculate Average Salary (Last 10 Months)
- April to June (3 months): ₹6,000 basic + ₹700 (70% of ₹1,000 DA) = ₹6,700
- July to December (6 months): ₹7,000 + ₹700 = ₹7,700
- Total for 9 months = (3 × ₹6,700) + (6 × ₹7,700) = ₹20,100 + ₹46,200 = ₹66,300
- Average Salary = ₹66,300 ÷ 9 = ₹7,366.67
Step 2: Completed Years of Service
- 36 years and 9 months → rounded down to 36 years (as per rules for non-GPA employees)
Step 3: Gratuity Exemption
- Half month’s salary × Years of Service = ½ × ₹7,366.67 × 36 = ₹1,32,600
Step 4: Exempt Gratuity
- Least of the three:
- Actual Received = ₹5,00,000
- Statutory Limit = ₹20,00,000
- Half Month Salary Rule = ₹1,32,600
- Exempt Gratuity = ₹1,32,600
Step 5: Taxable Gratuity
- ₹5,00,000 – ₹1,32,600 = ₹3,67,400 (Taxable)
Conclusion:
For the Assessment Year 2024-25, Mr. Nagraj’s taxable amount of gratuity will be ₹3,67,400 as per Income Tax Act provisions for employees not covered under the Payment of Gratuity Act.