My friend retired from a public sector company in 2007 and received Rs 3.64 lakh as gratuity out of which he paid tax on Rs 14,000 since Rs 3.50 lakh was exempt. However he is now due for Rs 2 lakh as additional gratuity due to wage revision effective from 2007 and he wants to know whether this amount is taxable. As per my knowledge this is not taxable as the gratuity limit is increased to Rs 10 lakh with effect from 10 May 2010.
Assuming that the public sector company is covered under the Payment of Gratuity Act, 1972, (POGA) and your friend had received gratuity under POGA, the tax exemption should be computed as per section 10(10)(ii) of the Act. The statutory specified upper cap in the POGA read with the provisions of the Act, has been enhanced from Rs 3.50 lakh to Rs 10 lakh effective 24 May 2010. Since this is not a retrospective amendment, the benefit of enhanced tax exemption of Rs 10 lakh would be applicable to employees who retire on or after 24 May 2010.
Since your friend has already retired from service in 2007, he would not be entitled to avail the benefit of enhanced limit of Rs 10 lakh. Accordingly, the additional gratuity shall be taxable as per the fiscal of receipt.
Further, your friend can claim relief as per the provisions of the Act in respect of arrears of gratuity received.
I have read about advance tax. I want to know that whether a salaried individual needs to pay the same separately or the tax deducted at source is sufficient.
As per our tax laws, it is mandatory for every person liable to pay tax in India, to pay income tax in advance, if his estimated tax liability (after considering the tax deducted at source, if any), on projected income is likely to be Rs 10,000 or more during the relevant fiscal.
In respect of salary payment, since the employer is obligated to deduct tax at source (TDS) and deposit the same into the government treasury within the specified time frame, you do not have to comply with advance tax provisions for salary separately.
However, if you envisage that your total tax liability (after considering the TDS, on estimated total income (other than salary) is likely to exceed Rs 10,000 during the fiscal, you would be required to pay advance tax as per the prescribed instalments. Alternatively, should your employer agree, you may choose to disclose other income such as interest, and rentals to your employer, who can then factor the same while deducting the taxes at source from the salary income.
Please note that in case of individuals, up to 30% of estimated tax liability is payable on or before 15 September of the fiscal, up to 60% is payable on or before 15 December and up to 100% is payable on or before 15 March.
Parizad Sirwalla is a Partner (tax) with KPMG.
Queries and views at firstname.lastname@example.org