Exemptions on retirement benefits
Gratuity
Employees of the Central Government, State Governments, Local Authorities, and other Non-Governmental Employees who are covered by the Gratuity Act of 1972 are eligible for this type of gratuity. According to the type of employment, the amount of the exemption varies. We look at the exclusions granted to each of these workers in the following paragraphs:-
(a) State government, the federal government, and local authorities
Employees who worked for the government or a local government will be completely free from paying taxes, allowing the concerned taxpayer to enjoy the benefits of their labour without having to pay taxes on any of their savings.
(b) Employees Protected by the 1972 Gratuity Act
Employees who are covered by the Payment of Gratuity Act, 1972, would be excluded to the extent that the amount received does not exceed the amount determined in line with the Act's requirements. According to section 4(1) of the Payment of Gratuity Act, 1972, an employee who has worked continuously for at least five years and terminated employment for one of the following reasons is entitled to a gratuity:-
(i) Upon retirement or resignation, for example, or
(ii) In the event of death or disabling illness brought on by an accident.
Where an employee's employment is terminated owing to death or disability, the completion of five years is not required. The least of the following shall be excluded with regard to workers who have not worked for the government but are still covered by the Gratuity Act of 1972:-
(i) 15 days of pay, or a portion of that amount, for each year of service.
(ii) The actual tip that was given.
(iii) Rs. 20,00,000. (Notice No. 16/2019, issued March 8, 2019).
(c) Additional Non-Government Workers
The least of the following shall be excluded for non-governmental workers who are not covered by the Payment of Gratuity Act of 1972:-
(i) A half-worth month's of the average pay for each year of service.
(ii) The actual tip that was given.
(iii) Rs. 20,00,000.
Every individual or corporate applies for tax exemption in India.
Commuted Pension
Personnel associated with the central government, state government, local authority, and non-governmental employees are eligible for commuted pensions. While non-governmental personnel will be eligible for any of the following exemptions, pensions supplied to the former will not be subject to taxes:-
(i) 1/3 of the entire pension value in the event that the employee receives a gratuity.
(ii) If the employee receives no gratuity, half of the total pension value.
Encashment of Leave Salary
Employees will receive financial rewards for not using their permissible absences. Employees of the Central Government, State Governments, and other Employees are eligible for the benefit. While other workers will only be excused to the extent that they earn the least of the following, Central/State Government personnel will be exempt from their whole leave salary:-
(a) Standing leave wage credit at the time of retirement for the time spent on paid leave.
(b) The quantity of paid-in leave.
(c) The ten-month period's median wage.
(d) A predetermined amount of Rs. 3,00,000.
Click here for tax exemption under section 80g.