How to calculate the due gratuity amount?

Anyone who works with the same company for more than five years is eligible to receive gratuity.

Print Edition: November 13, 2008

I am going to retire next year after having worked with a company for 20 years. How can I calculate the gratuity that is to be paid to me?
— Naresh Kumar

Anyone who works with the same company for more than five years is eligible to receive gratuity. If you are covered under the Payment of Gratuity Act, 1971, the amount will be calculated as follows:

Gratuity = (Last drawn salary / 26) x 15 x Number of years of service

Only the basic pay and dearness allowance is considered while accounting for the last drawn monthly salary. For computation of gratuity, your service period will be rounded off to a year. So if the actual figure is 14 years and 7 months, it will be considered as 15 years. The gratuity received under the Act is tax-free to the extent that it does not exceed 15 days’ salary for every completed year of service. This is subject to a maximum of Rs 3.5 lakh. This tax-free ceiling applies to the aggregate of gratuity received from one or more employers in the same year or during different years.

My company sent me to the US for a two-month assignment and gave me various allowances to meet my daily expenses. Will the unspent allowance be taxable in India?
—Dev Sen

Yes, the unspent allowance is taxable in India. The daily allowance is given to an employee for meeting the routine and other necessary expenses which he incurs when he is away. So, unless you provide the requisite bills to your employer, this allowance will be taxed as income. You can avail of tax exemption, but only to the extent of the actual expenditure.

I made a long-term gain of Rs 23 lakh by selling some shares. But these shares were not sold through an exchange and I did not pay any securities transaction tax (STT). How much tax will I have to pay? Can I avail of any tax deduction if I use the money to buy a house?
—Rohan Patankar

Any long-term capital gain from the sale of shares is exempt from tax if the transaction is conducted through a recognised stock exchange where the STT is deducted. As you have sold the shares through a private deal, you will have to pay tax on the long-term capital gain, either at the rate of 20% with indexation of the initial cost price, or at 10% without indexation, which ever is lesser. The indexation method takes inflation into account. The cost of shares is calculated by multiplying the cost price with the cost inflation index of the latest year and dividing this with the cost inflation index of the year of purchase.

You can claim tax relief under Section 54 by investing the sale proceeds in a house. The house could have been bought a year before the sale of shares or two years after doing so. The relief in the long-term gain is in proportion to the amount invested divided by the net amount earned from selling the shares. Also, if you sell the new house within three years from the date of purchase, the tax benefit will not be valid.

I plan to take a Rs 70 lakh loan jointly with my brother and pay a proportionate amount as EMI. Can we both claim tax benefits for these amounts?
—Mohan Pal

If you raise a joint loan for buying a house, both you and your brother will be entitled to tax benefits under Section 80C for the repayment of the loan. This is limited to a maximum of Rs 1 lakh individually for the principal instalment portion of EMI. However, both of you should be co-owners of the house. Also, in case you live in the house, each of you will get a deduction of up to Rs 1.5 lakh on the interest paid on the loan. If the house is given on rent, there is no ceiling on the deduction.

My father wants to gift a few lakh rupees to me. He is a senior citizen and does not file income-tax returns. Will this create any tax- related problems for him?
—Sriram Rao

Your father can gift any amount of money to you. This money will not be taxable in your hands. If your father does not have a taxable income, he may not be filing his income-tax return, but he should be able to explain the source of funds from which he intends to gift the money to you, in case there is an enquiry by the income-tax department. Also, it is advisable to draw a gift deed on paper and retain it for your records as documentary evidence.

My son has joined school (nursery class) this year. I paid Rs 85,000 as his admission fee, including other charges. Can I claim deduction under Section 80C?
—Ravi Mohan

No, you cannot avail of the tax benefit for admission fees, annual charges, development charges, caution money, donations or other payments of similar nature under Section 80C. Only the tuition fees paid can be claimed as a deduction, provided it is for the full-time education of two children. The tuition fee should be paid to a recognised university, college, school or other educational institutions within India.

I am paying Rs 7,500 as EMI on an educational loan taken by me. I am studying for an MBA degree from Delhi University. I am also working on a part-time basis with a finance company. How much is the tax deduction that I can claim?
—Kumar Raja

Deduction is allowed under Section 80E for the repayment of the full amount of interest paid on the loan taken for higher education. The period of deduction should not exceed eight assessment years, commencing from the year in which the first repayment is made. However, no deduction is allowed for the repayment of the principal amount.

Higher education means full-time studies for any graduate or post-graduate course in medicine, engineering, management, or a post-graduate course in applied sciences or pure sciences, including mathematics and statistics. An MBA from Delhi University is eligible and you can claim this deduction in your income-tax return.

My wife owns a plot of land. I want to take a home loan in my name and construct a house on the plot. Can I claim any tax deduction?
—Rajan Dhall

Yes, you can claim the interest paid on the home loan as a deduction and also the principal repayment as a rebate. The law recognises dual ownership with respect to an immovable property. This means that while one person owns the land, the other can construct on it. In your case, though your wife may be the owner of the land, if you construct a house, then you will also be the owner of the house. So you can avail of the benefit under Section 24 with respect to the interest on the loan and also the tax relief under Section 80C on the repayment of the principal.

My son sends Rs 20,000 every month to my wife. She has no other income. Does she need to file her return?
—Mohit Verma

According to Section 56, certain amounts received by an individual from specified relatives such as children are not taxable in the hands of the recipient. So the money received by your wife will not be treated as her income. Hence, she does not need to file her return or pay any tax.

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