Is gratuity a taxable income? If yes, is there a way to save tax by investing the amount? Also, how is gratuity calculated?
The amount of gratuity received from an employer is taxable as salary income. There is no specific avenue where you can invest the same to avail tax benefits. However, you can avail an exemption to the extent available under the Income Tax Act, 1961.
Assuming that your current employer is covered under the Payment of Gratuity Act (POGA), you would receive gratuity covered under POGA. Under POGA, the quantum of gratuity paid to you will be calculated as per the provisions of POGA and would depend upon your last drawn salary and years of service in the organization.
You could claim an exemption with respect to gratuity received under section 10(10)(ii) of the Act and the exemption shall be lower of the following:
Fifteen days salary based on last drawn salary for each completed year of service or part thereof in excess of six months.
Statutorily prescribed cap of Rs.10 lakh.
Actual gratuity received.
For the above purpose, the term salary has been defined to include basic salary and dearness allowance, if the terms of employment so provide, but excludes other allowances, bonus, overtime salary and perquisites.
Any gratuity amount received by you in excess of the above prescribed limit shall be taxable in your hands. Further, you shall be entitled to claim a relief as per Section 89 of the Act.
In case, your employer is not covered under POGA, exemption shall be computed according to the provisions of section 10(10)(iii) of the Act and the method of computation of gratuity may differ.
My father bought 100 shares of a company in 1994 which I plan to redeem. Will it qualify for long-term capital gain (LTCG)?
Assuming that the shares of the Indian company have been gifted to you by your father and you are selling the same, the period of holding for you shall be reckoned from the date of acquisition of shares by your father. As the shares are held for more than 12 months from the date of acquisition, the resultant capital gains on sale of the shares shall be LTCG.
The LTCG shall be computed as difference between the consideration received by you from sale of shares and the “cost of acquisition” of the shares. The cost of acquisition shall be the cost at which your father had originally acquired the shares. While computing LTCG, the cost of acquisition may be adjusted by applying the cost inflation index.
If securities transaction tax is paid at the time of sale, then such LTCG shall be fully exempt from tax in your hands.
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