Financial Planning: Harsh Roongta

I retired in April 2017 from ONGC and got tax-free gratuity of Rs 10 lakh. Further I was paid additional gratuity of Rs 10 lakh in January 2018 with TDS. Now gratuity bill was amended in March 2018 and the tax-free payment limit was increased to Rs 20 lakh. What are the tax implications of additional gratuity of Rs 10 lakh, which I got in January 2018?
Bakul Master

It is not clear from your query whether the gratuity paid by ONGC to you has been paid as per the limits specified under the payment of Gratuity Act 1972. Effectively, if the gratuity paid was only half a months salary for every completed year of service then the entire gratuity amount received by you would be exempt under the provisions of section 10 (10) (ii) of the Income Tax act as the maximum limit to be applied is to be taken as per the payment of gratuity Act which was raised to Rs 20 lakh before March 31, 2018. Hence the complete exemption should apply.

However if your employer paid more than half months salary for every completed year of service, then the exemption has to be claimed under section 10(10) (iii) of the Income Tax Act and the maximum limit of Rs 10 lakh has yet to be raised under the provisions of that section.

Your employer was right in cutting Tax Deducted at Source for the amount paid in excess of Rs 10 lakh as the payment of Gratuity Act had yet to be amended at that time. So in your case if the gratuity has been paid at half months salary for every completed year of service then you should file a return and claim refund of the Tax Deducted at Source by your employer.

Harsh Roongta, Sebi-registered investment expert