Tax queries: Can you claim tax refund on TDS deducted by employer on gratuity?
Dilip Lakhani Senior Chartered Accountant, answers queries from our readers on income tax and other levies.
I had retired from a bank on September 30, 2018. However, my employer deducted tax and advised me tax exemption on gratuity only up to Rs 10 lakh and deducted full tax on the amount exceeding Rs 10 lakh. The bank quoted: “As per circular No.138 dated 17.06.1974 amendment to Income Tax Act, rationalisation and simplification on the assessment of Salaried Taxpayers Finance Act 1974 Section 10(10) (ii) that is exemption of up to Rs 20 lakh would apply only where the payment is made in accordance with the provisions of Section 4(2) of the payment of gratuity (poga). Where enhanced payment are provided to the employees by virtue of Section 4(5) of the Poga, the same would be covered u/s 10(10)(iii) of the Income Tax Act and exemption is limited to Rs 10 lakh. This view is based on the premise that better terms of gratuity are regarded as gratuity payment under the agreement or contract with the employer and not under the payment of Gratuity Act.” However, in the light of the latest government announcement (following the March 29 circular) it was clarified that the limit has been increased and probably will come into effect since March 31, 2018. Please, therefore, advise me whether the aforesaid changes in gratuity limit exemption is applicable to me, as I had retired effective October 1, 2018. Can I get a refund of tax? Can I-T authorities also pay me interest? -- Mohan Kokane
Section 10(10)(ii) of I-T Act 1961 applies where the payment of gratuity is made in accordance with the provision of Section 4(2) and 4(3) of the Payment of Gratuity Act 1972 (Poga). In case of any other gratuity payment, the same will be covered u/s 10(10)(iii) of I-T Act 1961. From the advice provided by your employer it is understood that you have received a higher amount of gratuity as per the separate agreement or contract with the employer and not as per the Gratuity Act. Hence, you will be able to claim exemption u/s 10(10)(iii) of I-T Act 1961. On 8 March 2019, vide notification No 16, the ministry of finance has enhanced the income tax exemption for gratuity received under Section 10(10)(iii) of I-T Act 1961 to Rs 20 lakh in relation to the employees who retire on or after 29 March 2018. You have retired on 30 September 2018; therefore, you will be eligible to claim enhanced limit of Rs 20 lakh as exemption. As your employer has already deducted tax considering a limit of Rs 10 lakh, while filing your income tax return for AY 2019-20 you can claim exemption for gratuity received to the extent of Rs 20 lakh u/s 10(10)(iii) and claim tax deducted by your employer.
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