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CA Intermediate · Taxation · Salaries

Meera retired from a private company on 30 November 2026 after 18 years and 8 months of service. Her last drawn salary (basic plus dearness allowance) was Rs 52,000 per month. The employer paid her Rs 6,20,000 as gratuity, and she is covered by the Payment of Gratuity Act, 1972. Ignoring any other gratuity, what is the taxable gratuity for tax year 2026-27?

The taxable gratuity is Rs 50,000. The exemption is the least of Rs 20 lakh, the actual amount and 15/26 of last salary per year of service, with 18 years 8 months rounded to 19 years. That gives Rs 5,70,000 exempt out of Rs 6,20,000 received.

  1. ARs 50,000Correct
  2. BRs 80,000
  3. CRs 6,20,000
  4. DNil

Explanation

For employees covered by the Act, the exemption is the least of the statutory ceiling (Rs 20 lakh), the actual gratuity, and 15/26 x last drawn salary x completed years of service, where a part year of more than 6 months counts as a full year. Here 18 years 8 months counts as 19 years, so 15/26 x 52,000 x 19 = Rs 5,70,000. Taxable = 6,20,000 - 5,70,000 = Rs 50,000. Counting only 18 years gives an exemption of Rs 5,40,000 and the wrong figure of Rs 80,000.

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