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Exemptions for HRA and Gratuity

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Now a day’s most of the salaried class receives certain allowances and tax benefits from their employer as the return of their services. Some of them are like HRA, Gratuity, leave encashment etc.

Do you know these might be taxable?
Have u also received any Allowances worried about how to find the taxable amount of the receipt? If yes, then let us find out some of the exemptions listed under section 10 with the help of various flowcharts and explanations.
We will be discussing about the below mentioned exemptions:

  • House Rent Allowance(Sec-10(13A))
  • Gratuity received (Sec- 10(10))

House Rent Allowance (10(13A))
The House Rent Allowance (HRA) is the allowance which is given by the employer to his employee to meet his rental expense related to his house.

Receiving HRA from Employer will attract the provisions of the Income Tax Act 1961 related to salary. However, the government has provided some relief to the Assessee by introducing section 10(13A) which talks about the maximum exemption that a person can avail if he receives an HRA.

Following is the amount that is exempt under section 10(13A):

*Retirement Benefit Salary = Basic Salary (Basic Pay)
(+) DA (if it forms a part of retirement benefits)
(+) Commission (if expressed as a % of Turnover)

Gratuity 10(10)
Gratuity, as defined under Payment of Gratuity Act, 1972, is a lump-sum amount given by an employer to his employee on leaving the organization after serving the organization for a long period as a part of his retirement benefits. Gratuity received attracts the provisions of Salary of the Income tax act, 1961 and include this amount in the salary head of income. However, the Government has provided some relaxation with the exemption u/s 10(10) which is summarized below in the Flow chart.

Any Gratuity received in the course of employment to any employee irrespective of the fact whether the employee is a Government or other employee will be fully taxable in the hands of employee.

*Average Salary = [Retirement Benefit Salary of last 10 month immediately preceding the month of retirement]                                                                                       10 months

* Government includes all central, state and local authority employees except Statutory Corporation.

We at AJSH & Co LLP consult our clients in claiming eligible tax deductions and assist them in their tax planning. If you would like to know more about these tax deductions, kindly contact us.

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