Do you know whether the income earned in the form of Gratuity is taxed or not? This amount is completely tax free for government employees. However, for a private employee only a certain amount of gratuity is tax free. Know what is the rule regarding this.
Tax rules for Gratuity: If you do a job then you must know about Gratuity. When an employee works for five years or more in an organization, then gratuity is given to him by the employer. It is also called token of appreciation. If an employee works for the Central or State Government, then the gratuity received by him is completely tax free. However, when an employee working in the private sector gets a token of appreciation, then the tax rules are different for it.
To which institutions does the Gratuity Act 1972 apply?
As per the rules, if 10 employees were working in an establishment at any point of time during the previous year, then it comes under the purview of the Payment of Gratuity Act 1972. Now if an employee gets gratuity, then there are some conditions of the rule regarding tax.
1>> The amount received as gratuity.
2>> 20 lakh rupees.
3>> Last drawn salaryXnumber of years workedX15/26.
Minimum amount will be tax free
As per the rules, the minimum amount that will be based on the above three conditions will be completely tax free. Only basic and dearness allowance are included in the salary for calculation. Apart from this, any other component is not included in the salary.
Additional amount will be added to total income
Based on the above three conditions, the amount of gratuity that will be tax free can be easily ascertained. If you get more than that amount as gratuity, then the additional amount is included in your total income. It becomes taxable depending on the tax bracket you fall under.
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