Whereas submitting your revenue tax return and claiming tax exemptions, you will need to pay attention to the bounds and applicability. In a single such case the place the taxpayer was mistaken concerning the quantity of tax exemption obtainable to her for a gratuity quantity after retiring, the Revenue Tax division ended up imposing a penalty.She finally appealed to the Revenue Tax Appellate Tribunal and gained. What was the case and what does the ruling imply for taxpayers?Based on an ET report, a retired Kerala state authorities worker confronted a tax penalty after incorrectly claiming extra tax exemption on her gratuity. She submitted her revenue tax return on August 6, 2018, for FY 2017-18, initially claiming Rs 10 lakh tax-exempt gratuity beneath Part 10(1) of the Revenue Tax Act. Subsequently, she filed a revised ITR, growing the gratuity exemption declare to Rs 20 lakh. Her case was then chosen for normal scrutiny by the tax division.The assessing officer decided that the elevated tax exemption of Rs 20 lakh beneath Part 10(10) of the Revenue Tax Act, 1961 was solely legitimate for retirements occurring on or after March 29, 2018. As her retirement fell inside FY 2017-18, she was ineligible for the improved tax exemption of Rs 20 lakh.Consequently, the tax officer restricted her gratuity tax exemption to Rs 10 lakh beneath Part 10(10) and finalised her evaluation at Rs 36 lakh (36,89,900), opposite to her ITR-declared revenue of Rs 26 lakh (26,89,900).Additionally Learn | Revenue Tax division doubts Rs 10 lakh reward – brother will get tax discover for money acquired from sisters; how he appealed & gained the caseThe officer initiated penalty proceedings beneath Part 270A and levied a Rs 2.2 lakh penalty beneath Part 270A (1) learn with Part 270A (9), concluding that she had misreported her revenue.Dissatisfied with the choice, the retired worker appealed to the Commissioner of Revenue Tax (Appeals), or CIT(A). The CIT(A) rejected her attraction, noting her failure to offer proof of cheap trigger for not declaring Rs 10 lakh as taxable revenue and for claiming Rs 20 lakh exemption as an alternative of the entitled Rs 10 lakh.The previous worker, dissatisfied with the CIT(A) choice, took her case to the Revenue Tax Appellate Tribunal (ITAT), Cochin Bench. She acquired a beneficial verdict from ITAT Cochin Bench on September 22, 2025.
Gratuity tax exemption declare penalty: Why did ITAT rule in her favour?
- The Cochin Revenue Tax Appellate Tribunal’s evaluation centres on the taxpayer’s disclosure compliance. The tribunal famous that the assessee supplied complete factual particulars in each authentic and revised returns with out withholding any vital info.
- The upper gratuity declare stemmed from a real misunderstanding that the revised restrict utilized to the scenario. Upon studying throughout evaluation proceedings that the improved restrict was inapplicable, the assessee complied with the evaluation order, remitted the tax legal responsibility and kept away from interesting.
- The tribunal concluded that the case lacked components of misreporting or reality suppression, rendering the Part 270A(9) penalty untenable.
- Moreover, it decided that even when categorized as revenue underreporting, the assessee certified for
Part 270AA immunity having paid the assessed tax with out disputing the quantum addition. Consequently, the tribunal eradicated the necessity for a penalty.
Gratuity tax exemption defined
Based on Part 10(10) and the Authorities Notification of March 29, 2018, workers who retired or grew to become eligible for gratuity from March 29, 2018 onwards may declare the revised exemption restrict of Rs 20 lakh. Nevertheless, those that retired earlier than this date remained topic to the earlier Rs 10 lakh tax exemption ceiling.The precise case referenced right here entails an assessee who retired in FY 2017-18, earlier than the notification got here into impact. Subsequently, she certified for an exemption of solely Rs 10 lakh beneath Part 10(10). Any gratuity quantity acquired past this threshold was thought-about taxable wage revenue for that monetary yr.Additionally Learn | Landlord vs tenant eviction case: Supreme Courtroom guidelines in favour of landlord regardless of tenant’s son not signing lease receipts – right here’s what the ruling meansConsequently, the worker’s gratuity exemption entitlement remained at Rs 10 lakh, which was the relevant restrict when she retired.The retired worker argued that no misreporting occurred on the assessee’s half. Moreover, they prompt that at most, the case could possibly be seen as revenue underreporting. On condition that the assessee accepted the addition and cleared the demand, they claimed eligibility for immunity beneath Part 270AA.Based on the ET report, the Revenue Tax Division on its half argued that the assessee’s declare for Rs 20 lakh gratuity advantages exemption clearly violated relevant provisions.The Departmental Consultant referenced Paragraph 7.19 to 7.22 from the Ld. CIT(A)’s impugned order, noting that the assessee had not sought Part 270AA advantages. Moreover, these advantages weren’t relevant in circumstances involving revenue misreporting.The Tribunal famous: “It’s an admitted place that when the improved declare was rejected by the assessing officer, the assessee has accepted the evaluation order and paid the extra tax demand.”1. The assessing officer was incorrect in figuring out that the retired worker had misreported revenue.2. The retired worker qualifies for immunity beneath Part 270AA, having paid further tax and never appealed in opposition to the evaluation order.