I have been employed with a private company for 22 years and seven months. I will be retiring from service in May 2018. I expect to get a good sum as gratuity on retirement. I understand that gratuity depends on the basic and dearness allowance (DA) components. My monthly basic is around ₹50,000 and the DA ₹25,000. How much can I expect to get and is it taxable? If yes, how much will be the tax?

Suhas

Gratuity is payable to the employee if either the establishment is covered under Payment of Gratuity Act, 1972 (‘Gratuity Act’) or based on the terms of the employment contract.

For establishments covered under the Gratuity Act, gratuity is calculated as under:

Last drawn salary x 15/26 x number of completed years of service or part thereof in excess of six months. Salary for this purpose is basic and dearness allowance.

Gratuity is exempt under Section 10(10) of the Income Tax Act, 1961 (‘Act’) to the extent of least of the following: (a) 15 days salary for each completed year of service or part thereof as indicated above (b) ₹20 lakh (c) gratuity actually received.

For employees of establishments not covered within Gratuity Act, gratuity would be based on employment agreement. Tax exemption is available for such gratuity under the Act to the extent of least of the following:

(a) half a month’s salary for each completed year of service. Salary for this purpose would be average of the last ten months salary consisting of basic and dearness allowance.

(b) ₹10 lakh

(c) gratuity actually received.

I have two houses, one in Delhi that has been rented out and the other in Mumbai which I occupy. I have housing loans running on both the properties. What are the tax benefits on these loans?

Vivek

Deduction of interest on housing loan is available for both rented as well as self-occupied property subject to certain limits.

In case of self-occupied property, though, net annual value from the property is considered as zero, interest on housing loan up to a maximum of ₹2,00,000 can be considered as loss from house property. This loss on account of interest on housing loan can be adjusted against other heads of income such as salaries, income from other sources. For let-out property, interest on housing loan can deducted from rental income from such property as reduced by municipal taxes and standard deduction. If this results in a loss, then set off against other heads of income is allowed only to the extent of ₹2,00,000. However, loss exceeding ₹2,00,000 can be carried forward for up to eight years and set off against income from house property.

Irrespective of whether the property is rented or self-occupied, principal repayment towards housing loan is eligible for deduction under Section 80C.

The writer is Partner, Deloitte India. Send your queries to taxtalk@thehindu.co.in

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