Tuesday, September 20, 2011

89(1) relief on Gratuity Received in FY 2011-12


By on 10:10 AM

Gratuity is taxable in employees hands subject to some Exemption and rebates. Tax on Gratuity payment is depended on status of the Employee.To study impact of tax due to Gratuity payments , employee are divided in three categories and taxed accordingly .Most of persons are aware of maximum exemption limit for Category two and three below,i.e Rs 350000/- for employees retired on or before 24.05.2010 and Rs10,00,000 for person retired there after .
But a Few people know that  relief  u/s 89(1) is also available on Balance amount of taxable gratuity .We have prepared a calculator to calculate Tax relief u/s 89(1) on taxable part of gratuity.

This calculator is helpful for person who are covered in category three(given below) and retired on or before 24.05.2010 and received gratuity amount in financial year 2011-12.


Calculator is given under.Fill only yellow cells.Click on "click on edit" to edit data. Enter data one by one slowly.Sheet may take time to update.Calculator will be available for download in January ,2012 .Report errors in comments or mail me guptarajin at yahoo.co.in.
If calculator not opened below the click this link
Relief u/s 89(1) is a arithmetic exercise .
  1. First calculate tax rate( %)after inclusion of taxable gratuity in year of receipt .
  2. Second calculate tax on last three year income after adding 1/3 of taxable gratuity each year.
  3. Calculate average rate of tax for last three year.
  4. Calculate tax on taxable gratuity amount @ rate calculated in (1) above.
  5. Calculate tax on taxable gratuity amount @ rate calculated in (3) above.
  6. Calculate tax relief u/s 89(1) by reducing value as per (4) minus value as per(5) above.
As per Income Tax act ,Section 10(10),employees has been divided in three categorise.


  1. Employee of Central/State Government and Local bodies :Gratuity received by these employees is fully exempted without any limit.
  2. Employee covered under Payment of Gratuity Act: Amount received as per Gratuity Act is fully exempted .Means Income Tax has not defined /set any Limit for such employees.Means as soon as the amount of Gratuity Act ,enhanced ,Income tax Limit will also enhanced.As the income Tax act only refer the Payment of gratuity act .
  3. Other employee:For other remaining employee Limit is defined under the Income Tax act ,which is at present 3,50000.But many PSU ,which is not covered under the Sate or Central Govt definition as per sr number 1 and 2 above ,has started to pay ,gratuity as per Sixth pay commission ,maximum up to 10 lakh .So amount in excess of 3.5 lakh is taxable in hand of such employees .As the Limit is enhanced in Payment of Gratuity Act as per sr number 2 even then separate notification under this sub clause [10(10)(iii)} is required .The Limit is related to date of retirement /resignation and not to date of receipt.Update :Govt has enhanced the exemption limit for person retired after 24.05.2010 .

About Syed Faizan Ali

Faizan is a 17 year old young guy who is blessed with the art of Blogging,He love to Blog day in and day out,He is a Website Designer and a Certified Graphics Designer.

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