Gratuity Payment v/s income tax

[Ashok Chopra]

Dear Sir,

I am want to pay  voluntary gratuity to my some employees who have not completed three years and i want to pay them gratuity for three years.

My querry:-

Will income tax department will disallow gratuity expenses as they have not completed five years as per Payment of Gratuity Act?, if yes, please guide me what should i do?

Should I deduct TDS on it or not?

Thanks and regard

[CAGOPALJI AGRAWAL]

It would be treated as ex-gratia payment liable to tax and TDS.

[Ashok Chopra]

Sir,

may management is interested to book this amount in Gratuity, if we book this amount in Gratuity account, will income tax department disallow the expenses and charge income tax from our company. Is there any other way out, i should give this amount to my employee without deducting TDS and liability of income tax should not be on the company at the time of assessment.

AI Summary

Ex-gratia payment to ineligible employees treated as taxable, with TDS required on such voluntary gratuity. The document presents a query about voluntary gratuity payments to employees with less than the statutory service period and asks if such expenses will be disallowed and whether TDS must be deducted. The reply states these payments would be treated as ex-gratia, taxable in the hands of recipients and subject to TDS. The employer asks whether booking the amounts to a gratuity account will avoid disallowance or employer tax liability; the text records the question without further authoritative resolution.