EXEMPTION FOR SALARY INCOME

1. Gratuity Sec.10 (1)

Gratuity is a payment in return of service and is taxable on contractual salary based on the length of service.

*Exemption from Tax

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I. Govt and local authority employees- fully exempted from tax

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II. Non govt. Employees under the payment of gratuity act of 1972, Exempt the least one from the following….

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1.15days salary for each completed year of service
2.Maximum limit Rs.350000/-
3. Gratuity actually received

**(15 days salary means 15/26 based on the last drawn on last month payment)
**More than 6 month’s service taken as 1 year service
**Here salary means Basic pay +DA+ percentage of Commission on Turn over
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III. Non.govt employees not covered under gratuity act of 1972, Exempt the least one from the following….

1.Half months salary for each completed year of service
2.Maximum allowable limit Rs.350000/-
3.Gratuity actually received

**Half months salary = average salary of 10 months preceding retirement
**Here salary means Basic pay + DA+ % of Commission on turn over

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2. Commuted Pension Sec.10 (10a)

Commuted pension is the lump-sum payment in lieu of pension

*Exemptions from tax

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I. Govt. Employees- fully exempted from Tax

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II. Non-Govt employees

1.Commuted value of 1/3rd of pension if he receives gratuity pension
2. 50% of commuted value of pension if he doesn’t receive gratuity

III Commuted value of pension from LIC of India fully exempted (1.08.96)

*Uncommutted portion of pension is fully taxable

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3. Leave salary or encashment of earned leave Sec 10(10aa)

It means,
1. Encashment during service is fully taxable
2. Encashment after retirement or superannuation or otherwise

*Exemptions from tax

1) Govt. employees- fully exempted from tax

2) Non-Govt. employees, exempt the least of the following

1.Actual amount received
2. Maximum limit Rs.300000/-
3.Average salary for 10 months
4.Salary for approved period

**Here Salary = Basic pay + DA + Commission (% on turnover)

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4. Compensation for retrenchment Sec 10 (10.b)

Any compensation received under the Industrial dispute Act of 1947 at the time of retrenchment is exempt to the extent of the following...

1. 15days average salary
2.Maximum limit Rs.500000/-
3. Actual amount received

**Here Average salary = if monthly salary then last 3 calendar months salary
*Weekly salary then last four completed weeks
*Daily wages then last 12 full working days

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5. Compensation on voluntary retirement (sec.10 (10 c)

Here exemption to the least of the following... (3 months salary for each completed year of service )

1.Salary at the time of retirement multiplied by the balance months of service
2.Actual amount received
3.Here salary = basic pay + DA + commission (% on Turn over)

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