No tax on gratuity received on retirement

SC VASUDEVA

Q. My father retired from service six years ago. He got leave encashment, gratuity and other benefits from government amounting to Rs 30 lakh to his credit. My query is whether he can withdraw money for below-mentioned purposes:

For religious purposes: Rs 4 lakh

For marriage of his daughter: Rs 12 lakh

For repair of house: Rs 4 lakh

Please guide whether any intimation is required to be given to the Income-Tax Department before or after the withdrawal.

— Gurdeep Singh Bindra

A. Section 10(10) of the Income-tax Act, 1961 (The Act) exempts from tax any amount of death-cum-retirement gratuity received by an employee of the Central or State Government at the time of his retirement. Section 10(10AA) of the Act also exempts any amount received by an employee of the Central or the State Government as cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement. The amount so received by your father can therefore be used by him for any purpose. No tax would be chargeable on the amount withdrawn from the bank account in which such amount of gratuity and leave salary stands deposited. No information is required to be given to the department before or after withdrawal from the bank account wherein such amounts stand deposited.

Q. My father late Sarbans Singh expired on December 30, 2014. His date of birth was January 6, 1920. My father had FDRs in SBoP, Bharat Nagar Chowk, Ludhiana, in joint name (Sarbans Singh + Harpal Singh) payable to either or survivor. He also had a joint savings bank account with me. During the financial year 2016-17, the bank credited FDR interest of Rs 89,735 in the joint savings bank account and deducted Rs 8,977 as TDS. My father did not have Aadhaar card.

How can I file ITR-I and get refund of Rs 8,977?

Who will sign the ITR-I return? Annual interest is credited by the bank in our joint savings account.

Form 16A has been issued by the bank in the name of Sarbans Singh. Please advise.

— Harpal Singh

A. Your father having died on December 30, 2014, the fixed deposit receipt as well as the savings bank account should have been designated in your name and the name of the deceased should have been deleted. The bank should have been informed about the death of your father and the relevant death certificate should have been filed as supporting evidence. The savings bank account and FDR would have been in your name after such deletion. In case your father had any taxable income, the tax return for assessment year 2015-16 (financial year 2014-15) should have been filed under your signatures as legal heir of your father after getting the status of legal heir registered with the tax department.

It seems above steps were not taken by you. It may be very difficult to get yourself registered as legal heir of your father at this stage. The registration process requires certain documents such as succession certificate, registered will, etc. to be filed with the department. This process may be tried at this stage but it seems to be a difficult process because the department may not agree to accept this contention after the delay of almost two years. On the basis of the facts given in the query, it may be very difficult to get the adjustment of tax deducted at source against the tax payable by you as the amount of interest would be includible in your income in case the status of legal heir is not accepted at this stage. You should take immediate steps to rectify this error at the level of the bank.

Q. What are the legal implications if my NRI son delays/does not convert his savings account in India into an NRO account? — Balkrishna

A. In accordance with the Foreign Exchange Management (Deposit) Regulations, 2016 dated April 1, 2016 as amended from time to time, the existing account is required to be designated as an NRO account. You would therefore be well advised to inform your bankers about the status of your son having migrated abroad with an intention to stay outside India for an uncertain period. The implications of not informing earlier should be checked up with your bankers.