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  • Category: Tax Planning

    Does PF settlement and Gratuity amount need to be included as income when filing taxes?

    Have a query about PF settlement and Gratuity in filing IT returns? Looking out for resolution of this query and help here? On this Ask Expert page ISC members shall provide with guidance on filling the IT returns form.

    I would like to know if PF settlement and gratuity amount are to be included in the income tax calculation?
    For instance, consider a person who worked only for 4 months during the last financial year (2017-18) has got a salary of INR 60000 and has quit the job and did not work thereafter. The company has settled the PF and Gratuity amount. The person did not earn any money except the above during the last financial year.
    Now my question is, does the person need to file income tax returns?
    If yes does he/she need to include PF and Gratuity amount as an income while filing?
  • Answers

    5 Answers found.
  • There is no scope of confusion. PPF proceeds (Principal+Interest) are always non-taxable. As per the latest amendment, the gratuity amount is non-taxable upto a maximum limit of Rs. 20 lakh.

    So, irrespective of salary/employment status of a person, the PPF and gratuity is non-taxable in this case.

    "If you are killed in action, you go to Heaven. If you win, you rule this Earth (as beautiful as Heaven). That is why, O son of Kunti, take a firm resolve and fight!"-- Shrimad Bhagwad Gita

  • PF and Gratuity are the benefits of your past service and are not accounted in taxable income. So while filling your Income Tax return you can show them under the head of non-taxable receipts during the relevant financial year.

    Now coming to your query whether you have to file the return or not. It depends on your earnings from various sources in that financial year. Presently, if your income is less than Rs 250000 per annum, you are below the limit of taxable income and in that case, you need not to even file the return.

    In this reference, the most important thing is that in subsequent years your income may increase due to your joining a good job and you will cross this threshold of Rs 250000 and will be liable to file the return. In that case, when you file a return, the tax authorities may insist you to file the return for last one or two years. So to avoid this problem, even if you are below the threshold limit there is no harm in filing a return.

    Let us take a practical example now. Suppose you have invested in bank FDs and you are getting some interest then it is taxable. Another thing is if you have some property and you are getting rent from it then it is taxable. Further, if you had some shares or bonds or Mutual Fund units which you sold in 2017-18 then some of those gains are taxable. All these interests or capital gains are taxed in different ways and most of the places some basic exemption will be there. For example you can deduct 30% of your rent received before you add it to your taxable income.

    Now if you add all these (of course if you have these sources!) and you find that your taxable income is above the threshold, please file a return. It will help you in long run.

    Please also note that if you have some income which you want to hide then there is no point in filing a return because due to linking of bank accounts etc you will be caught sooner or later and will be asked to file revised return along with penalties. So check and see all your sources of income and consult a Income Tax consultant and file a return.

    Some people who are very near to threshold do not bother to file a return. There is no problem but they should invariably maintain a detailed record of their earnings and savings and calculate themselves the steps of Income Tax and when they find that they need not to pay tax then just keep that worksheet with them for any query or notice from the tax department.

    Knowledge is power.

  • PF amount and gratuity amount are tax free. You need not show them in your returns. Last year I got my PF and gratuity. But I have not shown them in my ITR. This I have done as per the advise of consultant. There will not be any problem. If you don't have any other income you need not submit ITR.
    If you have a PAN card and if you are submitting ITR every year, this year also you can submit showing nil income. But it is not essential.

    always confident

  • First of all I would like to ask to how the employer settles your PF amount as the same is settled by PF department directly. Even if I accept that the same has been settled by your employer even then the same must have come from PG department only.
    As you said that you have worked only for 4 months and then left the job that means the PF amount received by you is subject to tax deduction@10% as the same is withdrawn before 5 years. Now you need to check that that amount received by you is net of tax and also check your Form 26AS to confirm the same I am saying this as I have withdrawn my PF amount before 5 years and there was a tax deduction of 10% on entire amount and also the pension contribution was withheld. Also the Provident Fund provisions also say the same thing.

    This means that you will have to disclose the same in your return as other receipts and disclose salary under head salary.

    For gratuity amount again for have a doubt that a person does not become eligible for gratuity until and unless he has served for 5 continuous years. Still if you say that you received gratuity amount then the same can be exempted bas d on the applicable provisions as there is exemption of maximum 20 lakhs. The provision vary for Government and private employee so the same can be explained after the status of employee is clear. Anyhow the same will not be taxable.
    Still this amount will also be shown in your ITR.

    You need to cross check your TDS on PF and the gratuity amount if actually received or is it some other amount.

    Live before you leave.

  • Provident fund and gratuity are not taxable amount and are to be shown in IT return under that category only.

    Filing of IT return depends on one's income. If the income is high and more than the stipulated limit of 2.5 lakh and 3.0 lakh for a normal or a senior citizen category of the tax payer then it becomes mandatory.

    Income tax return is a document which gives all the details of one's income and savings etc and even the earlier years cumulative interest and other earnings are mapped there if one is filing it regularly.

    It is a good practice to file the return every year as it gives an opportunity to cover all your income and savings in nutshell at one place.

    There are certain items which are not taxable. These should also be shown in your return because you are receiving them in the respective financial year.

    Disclosing all the sources of income and claiming the allowed deductions is a good practice while filing return and it helps in achieving consistency in year to year reporting also. Due to our ignorance we sometimes hide some transactions while filing a return. This is to be avoided. Anything which is significant but not reflected in the return tantamounts to black money creation especially when it is taxable. So we must be having clarity on this account.

    Thoughts exchanged is knowledge gained.

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