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I retired from the government of Andhra Pradesh in 2013, but my gratuity amount of ₹8 lakh was withheld due to pending departmental enquiry. On High Court order, the case was dropped and 9 per cent interest was given to me on delayed payment of pension and gratuity etc. Now, since gratuity amount not liable for tax, is the interest paid by the government on delayed payment of gratuity also exempt from income tax? Kindly clarify.
Pasala Prasad
As per the Income Tax Act, 1961 (the Act), the gratuity amount is exempt from income tax under Section 10(10) of the Act, provided it is within the prescribed limits. However, interest received on delayed payment of gratuity is treated differently.
The interest paid by the government for delayed gratuity is generally taxable under the head “Income from Other Sources,” as it serves as compensation for the delay and is not part of the gratuity itself.
To summarise:
-Gratuity Amount: Exempt from income tax under Section 10(10) of the Act.
-Interest on Delayed Payment: Taxable under “Income from Other Sources.”
The said interest income is to be reported in your tax return under the head “income from other sources”.
The author is a practising Chartered Accountant
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