Exemption for gratuity: effective date of enhancement
Payment of Gratuity Act has substituted Rs. 3.50 lakh to Rs. 10 lakh in Sec. 4 of that Act. When does it come into effect?
Payment of Gratuity (Amendment) Act, 2010, has been amended coming into force with effect from a date to be notified by the Central Government. The Amendment Act itself became law with effect from May 17, 2010. Notification No.S.O. 1217(E) dated May 24, 2010, appoints this date, that is May 24, 2010, as the date on which the Amendment Act comes into force. Only retirees on or after May 24, 2010, would have the benefit of higher ceiling of Rs. 10 lakh under Sec. 10(10)(ii) of the Act.
Sec. 10(10)(ii) of the Income-tax Act is applicable for those governed by the Payment of Gratuity Act. Exemption will be the amount vide sub-sections (2) and (3) of Sec. 4 of the Payment of Gratuity Act or the ceiling, whichever is lower. Government servants were already exempt under Sec. 10(10)(i) applicable to them up to Rs. 10 lakh, when the ceiling was raised for them from Rs. 3.50 lakh by a notification dated September 2, 2008, amending Rule 50 with retrospective effect from January 1, 2006. The delay of nearly three-and-half years as between Government servants and those covered by Payment of Gratuity Act for this ceiling is not justified because terminal benefits do not have the character of income and they are only deemed as income, subject to ceiling under Sec. 10(10) adopting what is given to the government servants as a benchmark of reasonable limit for exemption.
For others, relief would have to accord with the formula under Sec. 10(10)(iii), subject to the ceiling notified by the Central Government under this provision. The limit was raised for them to Rs. 3.50 lakh vide Notification No. 10772 dated January 20, 1999, with retrospective effect from September 24, 1997. Increase in limit for this class of persons is now awaited.
There is no justification for discrimination as between different classes of employees with reference to retirement date between government servants and others.
Since no guidelines as regards the choice of date for extending the ceiling are available in the statute, one would expect that the decision taken for government servants as regards tax treatment of retirement benefits should have been made applicable for others as well with effect from the same date.
Source: The Hindu