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Retirement Savings: How Much Tax on Gratuity and Super?

Mihir Tanna |1054 Answers |Ask -Follow

Tax Expert - Answered on Mar 05, 2025

Mihir Ashok Tanna, who works with a well-known chartered accountancy firm in Mumbai, has more than 15 years of experience in direct taxation.
He handles various kinds of matters related to direct tax such as PAN/ TAN application; compliance including ITR, TDS return filing; issuance/ filing of statutory forms like Form 15CB, Form 61A, etc; application u/s 10(46); application for condonation of delay; application for lower/ nil TDS certificate; transfer pricing and study report; advisory/ opinion on direct tax matters; handling various income-tax notices; compounding application on show cause for TDS default; verification of books for TDS/ TCS/ equalisation levy compliance; application for pending income-tax demand and refund; charitable trust taxation and compliance; income-tax scrutiny and CIT(A) for all types of taxpayers including individuals, firms, LLPs, corporates, trusts, non-resident individuals and companies.
He regularly represents clients before the income tax authorities including the commissioner of income tax (appeal).... more

Asked by Anonymous - Feb 16, 2025Hindi

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How much is tax on gratuity and superannuation and how to minimize the tax impact on reitirement

Ans: Gratuity is exempt as per prescribed formula which depends on last salary (Basic + DA) and subject to limit of 20 lacs.

Superannuation is taxable.

To minimize tax, you can opt for old tax regime if you are paying substantial amount for eligible deductions exemptions

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.

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Question by Bipin - Aug 26, 2022Hindi

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I have query on Superannuation. As I am looking completing 15 years of service and if I resign now following queries are coming to my mind: a) Is Superannuation exempted from Tax? If yes, what is the limit? b) What is procedure of Transferring Superannuation to next company? In the same way, please confirm on the gratuity component.

Ans:

a) Superannuation taxability is based on certain criteria:

If you are withdrawing the superannuation amount while leaving the company, the entire amount will be subjected to tax. This will be accounted as income from other sources, added the income and taxed as per your tax slab
If payment is made to the employee as an annuity after the retirement: 1/3^rd of amount will be tax free and the remaining annuity will be taxed as per your tax slab at retirement
It is not taxable if payment is made to the employee who is incapacitated by a disability or illness, or other reasons or payments made after death of employees to legal heirs

If both the parties (old and new employer) agree, then you can transfer the amount to new employer, provided the new company has an approved superannuation fund. If not, you can continue keeping the money in the existing superannuation account.

b) Gratuity is exempt from tax on the least of the following:

Up to 20 lakh currently: Last salary (basic + DA)* number of years of employment* 15/26
Actual Gratuity received
For government employees, gratuity is fully exempt from tax.

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