Representation – Tax Exemption for Gratuity Received

While the labour law reforms have significantly strengthened employee social security by broadening the wage base for computation of gratuity, the corresponding provisions under the Income-tax Act, 2025 have not yet been fully aligned with the revised statutory framework. This has resulted in unintended tax consequences for employees, increased compliance challenges for employers, and avoidable interpretational uncertainty. AMCHAM has requested the Central Board of Direct Taxes (CBDT) to kindly examine the listed issues raised and consider an appropriate legislative amendment and/or administrative clarification to harmonise the provisions of the Income-tax Act, 2025 with the Code on Social Security, 2020. Such an alignment would preserve the intended social security benefits of gratuity, promote certainty in tax administration, reduce compliance burden, and minimise future litigation.  The principal concerns include: 1) Non-alignment between labour and tax laws, 2) Differential tax treatment of similarly placed employees, 3) Continuing references to the repealed Payment of Gratuity Act, 1972, and 4) Increased compliance burden and litigation risk.