Gratuity (DB)

Payment of Gratuity Act 1972

 Payment made by the employer in appreciation of the past services
rendered by the employee.
 Application Process- Form-I (self)/Form J (nominee)/ Form K (legal Heir)
 Mode of Payment- Cash/ DD/ Cheque/ Postal money order
 Receiver- Employee/legal heir
 Tax status: Head- Salary OR Income from other sources
 Salary –Includes DA but not Bonus, commission, HRA, other allowances
 Limit exemption- Sec 10(10)
 Conditions: Service>5 yrs (not necessary in case of Death/Disablement)
6 months or more service taken as one year (except-where
PGA not applicable.)
Gratuity (DB)
Employees
(Tax Exem.Purpose)

Govt. /local Employees covered

Other Employees
authorities Under GPA 1972

 Calculation for Tax Exemption:

1. Amount actually received
2.15days wages last drawn for every year (15/26)-normal/piece
rated/seasonal employees
3. 350000/-
 Amount of Gratuity shall not exceed 20 month wages.
 Forfeiture - Partial- willful omission, negligence, damage of property
Whole- Riotous ,disorderly conduct, moral turpitude in course of
employment.
An employee retired after putting in 11 yrs 8 months service with a monthly
salary consisting of basic salary of Rs 20000, 30% of the basic as DA,
Rs 2000 as HRA and other allowances of Rs 1500. The employer paid
him Rs 300000 as gratuity. If the company is covered under the Payment
of Gratuity Act, how much amount of the gratuity is tax free ?

An employee working in a company not covered under the PGA resigned

from the job after putting in 25 years of service and was paid Rs 250000
as gratuity. If his salary before exit from service was Rs 10000 and
average salary of the last 10 months was Rs 9500, what amount of
gratuity is taxable ?
Leave Salary (DB)

 Fully taxable while in service, Different when paid on retirement.

 Leave encashment- Govt. employees- fully exempt

 Other employees-1. Leave encashment actually received

2. 10 month average salary
3. Cash equivalent for 30days for every year of
service actually rendered- basis- avg.salary
4. 300000/-
Leave Salary (DB)
A retired from XYZ ltd on 28-2-07. He has given following particulars

1. Salary at time of retirement- Rs 40000

2. Period of service - 25 yr 5 months
3. Leave Encashment- Rs 320000
4. Leave availed while in service- 12 months
5. Balance un-availed leave- 14 months
6. Avg. monthly salary for 10 months- Rs 40000
preceding retirement
7. Leave entitlement 1 month for every completed year of service.

Compute his Taxable leave salary.

Retrenchment Compensation (DB)

 To protect interest of employee who fall under the definition of

“Workman” as defined and described under he Industrial Disputes Act,
1947

 In terms of Sec25F(b) of Industrial Disputes Act,1947, the monitory

compensation payable on retrenchment will be equal to 15 days avg.
Salary for each completed year of part thereof in excess of six months
of service put in by the workman

 Meaning of average pay-

Paid workman- wages paid in 3 complete months
Weekly workman- wages paid in 4 complete weeks
Daily paid workman-wages paid in 12 full working days.
Voluntary Retirement Scheme

 Applicable to employees- completed 10 yrs of service or achieved 40 yrs

of age. (exception-Govt. emp.)
 Apply to all employees irrespective of positions held.
 The scheme should result in reduction in employee strength
 Vacancy created must not be filled in
 Retiring employee must not be employed in another company under the
same management
 Amount receivable under the scheme doesn’t exceed
equal to 3 month salary including DA for every completed year
OR
salary at the time of retirement multiplied by the balance months of
service left before date of retirement
Maximum tax exempt amount- 5 lakhs.