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Tax queries: How much of my gratuity amount is tax-exempt?

The maximum limit amount of gratuity under the Payment of Gratuity Act, 1972 has been enhanced from Rs 10 lakh to Rs 20 lakh vide notification dated 29 March, 2018.

ET CONTRIBUTORS|
Updated: Feb 15, 2019, 11.18 AM IST
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The maximum limit amount of gratuity under the Payment of Gratuity Act, 1972 has been enhanced from Rs 10 L to Rs 20 L.
Dilip Lakhani, Senior Chartered Accountant, answers queries from our readers on income tax and other levies.

I retired from a bank on Oct 1, 2018. My gratuity amount is more than Rs 20 Lakh. But my employer said that my tax exemption on the gratuity is only up to Rs 10 lakh. Can you clear the confusion? - MOHAN KOKANE

As per Section 10(10)(ii) of the I-T Act 1961, gratuity received under the Payment of Gratuity Act, 1972 is exempt in the hands of employees to the extent of the limit prescribed. The maximum limit amount of gratuity under the Payment of Gratuity Act, 1972 has been enhanced from Rs 10 lakh to Rs 20 lakh vide notification dated 29 March, 2018. The ministry of labour & employment has vide press release dated 30 March, 2018 clarified that enhanced ceiling of gratuity have been implemented from prospective date ie 29 March, 2018. It means provision regarding enhanced limit will be effective for employees becoming eligible on or after March 29, 2018. I understand that you have retired on October 1, 2018 hence you shall be eligible for exemption u/s 10(10)(ii) of IT Act 1961 for the gratuity received up to Rs 20 lakh.

My wife coaches students after completing her MCA. She is simultaneously pursuing BEd programme. Will her income be treated as income from profession? If so, which is the code to use under section 44ADA or 44AD? - HARISH S AGRAWAL

S 44ADA is applicable to an eligible profession which is defined u/s 44AA(1) of I-T Act, 1961. Your wife is coaching few students, which can be construed as she is engaged in teaching profession. The said profession is not an eligible profession u/s 44AA(1). She will not be eligible to avail the benefit of presumptive taxation under Section 44ADA while computing her taxable income. Teaching profession will also not be construed as carrying on business and hence she will also not be eligible to avail the benefit of presumptive taxation u/s Section 44AD of the I-T Act 1961. For computing the taxable income from this activity, from the gross receipts she can claim deduction of certain revenue expenditure, which are incurred wholly and exclusively for carrying out the said activity.

Do we really need to pay a tax demand of Rs 10? - ADITYA

No, there is no requirement to pay tax demand of Rs 10. The Government of India has vide press note dated January 5, 2012 clarifying that demand of less than Rs 100 will not be collected from the assessee.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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