Gratuity up to Rs 10 lakh exempt : The Tribune India

Join Whatsapp Channel

Tax Advice

Gratuity up to Rs 10 lakh exempt

I retired from the public sector in July, 2016 and received Rs 1,73,000 from LIC on account of commutation of pension and Rs 1,07,000 against Group Savings link insurance scheme.

Gratuity up to Rs 10 lakh exempt


SC Vasudeva

I retired from the public sector in July, 2016 and received Rs 1,73,000 from LIC on account of commutation of pension and Rs 1,07,000 against Group Savings link insurance scheme.  In addition, I got Rs 10 lakh on account of gratuity. Please let me know whether these amounts are taxable or not. — Avinash Joshi

It is presumed that you were working for a public undertaking which was not a corporation established by a Central, State or Provincial Act.  Reply to your query is based on the said presumption. Section 10A of the Income-tax Act, 1961 (The Act) provides that in case any payment of commutation of pension received from a fund set up by the Life Insurance Corporation of India or any other insurer under a pension scheme to which contribution is made by any person for the purpose of receiving pension and such fund is approved by The Insurance Regulatory and Development Authority, the value of such a commuted pension would be exempt from tax. Therefore, in case the commuted value of pension of Rs 1,07,000 is received by you from such a fund, the same would not be taxable. The amount of gratuity received by you to the extent of Rs 10 lakh is also exempt under Section 10(10) of the Act from tax in view of the amendment of the Act in respect of those employees who retired on 24.5.2010 or after the said date.  The amount received under group savings link insurance scheme should also be exempt from tax in view of the provisions of Section 10(10D) of the Act.

My mother (expired on 24/3/2015 at the age of 83) had term deposits worth Rs 50 lakh. Out of this, her youngest son (of all three sons) claimed Rs 14 lakh belonging to him and she was forced to give the same to him.

The remaining Rs 36 lakh was to be shared by three sons. She distributed Rs 12 lakh each to his three sons. The younger one did not opt for his share and instead gave his share of Rs 12 lakh to the youngest brother.

She got the term deposits issued for Rs 12 lakh each on 4/12/2013 for 36 months which were due on 4/12/2016. These deposits were made in her name (first name) and his eldest son as survivor. On 4/12/2016, the eldest son got the term deposits encashed. Our query is how to show this amount of maturity of Rs 15,92,273.87 in the income tax return of the eldest son for the financial year ending 31/3/2016 and 31/3/2017. Our mother was a senior citizen and not filing her ITR. — Lajpat Rai Thakral

The amount of interest earned on the term deposit which was held by your mother should be reflected as income in equal shares in the tax return of all legal heirs in accordance with the provisions of the Hindu Succession Act, 1956. As per law, a survivor would be able to receive the proceeds of the term deposits held along with the deceased or either of the parties. This approach is adopted normally so as to ease the process of encashing the term deposit after the expiry date. However, the fact that each one of the legal heirs has a share in the property of the mother in accordance with the provisions of the Hindu Succession Act cannot be wished away. The interest income, therefore, will have to be bifurcated in equal shares between the legal heirs of your mother and brought to tax accordingly.

I have deposited/invested money for a period of one year in a post office. Interest would be paid on maturity after one year and it would be taxable. Please advise whether I should get the tax deducted per month or should I pay the tax when I receive the amount on maturity? — Bhupender Singh

You have a choice to follow a cash or mercantile system of accounting in respect of income from other source. Interest earned from deposit in a post office amount would be covered within the category of ‘income from other sources’. You may, therefore, decide which method you would like to follow. I would, however, suggest that you should follow cash method of accounting so that the interest earned for the year is tendered for taxation in the year of maturity. This will also enable you to get a relief in respect of the tax deducted at source against the amount of tax payable on your total income assessable for the year in which such interest income is included.

Top News

Relief for Delhi CM, High Court bins plea for his ouster

Relief for Delhi CM, High Court bins plea for his ouster

Special court extends Kejriwal’s ED custody till April 1


Cities

View All