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TAX FORUM: QUESTIONS & ANSWERS

Tax on gratuity: discrimination against public sector employees

QUESTION: As per a news item, the Payment of Gratuity (Amendment) Bill exempts income tax on the enhanced limit of gratuity from Rs.3.50 lakh to Rs.10 lakh only in respect of persons retiring on or after May 24, 2010.

The revision of gratuity enhancing the ceiling from Rs.3.50 lakh to Rs.10 lakh in respect of all employees under the Ministry of Steel (MoS) was done vide Office Memorandum No. 2(70)/08-DPE(WC)-GLXVI/08 dated November 26, 2008, of the Department of Public Enterprises. However, there was delay in effecting the payment of gratuity as per the revised rates.

Since I retired on July 31, 2007, from Visakhapatnam Steel Plant (under the MoS), I was initially paid Rs.3.50 lakh as gratuity and the entire amount was tax-free. Later, on April 8, 2010, the additional quantum of gratuity was paid and credited to my bank account, but after deducting income tax at source.

I wish to know whether deduction of income tax from my gratuity is justified, and if so, does it not amount to discrimination?

ANSWER: The Bill has since become law. In view of the gap between the dates on which the liberalised amount of gratuity was authorised for public sector employees and the date on which the limit for tax exemption was relaxed, retirees between the two dates have to pay tax on the basis of the law prior to the Amendment Act. This anomaly was pointed out in The Hindu dated June 7, 2010.

There is discrimination arising out of delayed effect for exemption compared to government employees. It is not fair. But it is not vulnerable on this account, since different treatment for different classes of employment is not impermissible. It can be set right only by a further retrospective amendment of law, since no relief from a Court of law on the grounds of equity can be expected, where the law is unambiguous. The adage is equity and income tax law are strangers. Should they be sworn enemies? This was the question posed by a learned judge of the Supreme Court. Even so, the Court may interfere on the basis of equity, only where there is scope for doubt in the interpretation of law. There is none in the matter complained by the reader.

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