Discriminatory Taxation of Gratuity above Rs 10 lacs-Sec 10 (10) (iii) of Income Tax Act

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The IT Act, 1961 currently discriminates between Govt employees and employees of other bodies like Autonomous and Statutory w.r .t. tax exemption of Gratuity amount. For me tax has been deducted on source from the amount of gratuity received in excess of Rs 10 Lakhs.

 2. While for Govt employees exemption of gratuity upto any revised ceiling is automatic as per Sec 10(10) (i), for other employees like those working in statutory bodies who have adopted central govt pay structure and follow Govt pension rules, it requires a notification to be issued to raise the exemption limit in terms of Sec 10(10) (iii) having regard to the limit applicable in this behalf to the employees of the Government. This exemption limit was Rs 3.5 Lacs when Gratuity ceiling was Rs 3.5 lacs  for Govt employees. It was raised to Rs 10 Lacs when Gratuity ceiling was raised to Rs 10 Lacs on implementation of 6th Pay Commission vide S.O. 1414 (E) dated 11.6.2010.

           3.  Recently vide Office Memorandum F. No 38/37/2016-P&PW(A)Ci’) dated 4-8-2016 the Gratuity ceiling for Government Employees has been raised from Rs 10 Lacs to Rs 20 Lacs providing further for indexation on rise of DA beyond 50%. However, the notification for raising the tax exemption on gratuity to Rs 20 Lakhs for other employees in terms of Sec 10(10)(iii) is still not issued even after lapse of over an year.

            4.  It may be added that Income Tax Act cannot discriminate between Govt Servants and other citizens  w.r.t. Taxation of Gratuity and this is violative of  the Principles of equality enshrined in The Constitution of India. 

5. Accordingly, it is requested that a notification be issued for raising the ceiling for tax exemption of gratuity from Rs 10 Lacs to Rs 20 Lacs w.e.f. 1 st January 2016 i.e. date from which increased Gratuity ceiling is applicable and exemption is available to Govt employees. Infact it may be prudent to make the ceiling dynamic/automatic under 10(10)(iii) similarly as in 10(10)(i) to avoid need for  such notification every time Gratuity ceiling is raised for Govt employees to avoid any discrimination or time lag. This is more necessary now when DA based indexation has been implemented in revising the Gratuity Ceiling. (Pl see 6.2 of OM referred above dated 4-8-2016).         

I am sure that an early action would be taken under the dynamic Govt of Hon’ble Shri Modi assisted by his equally dynamic Ministers and Officials