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Krishna Gopal Tiwary & Anr. v. Union of India & Ors.

Civil Appeal · 2021 INSC 401Decided 13 Aug 2021
Civil Appeal No. 4744 of 2021
Justice Hemant Gupta · Justice A.S. Bopanna

Background

The appellants were Coal India Limited employees who had received enhanced gratuity (up to Rs. 10 lakhs) under a 2008 government office memorandum, before the Payment of Gratuity Act, 1972 was itself amended in 2010 to raise the statutory ceiling to Rs. 10 lakhs. Because their gratuity was paid before the amendment came into force (24.5.2010), tax was deducted at source on the excess over the old Rs. 3.5 lakh tax-exempt limit. The appellants argued the amendment should be treated as retrospective (effective from 1.1.2007) so that their gratuity payments would also qualify for full tax exemption. The Jharkhand High Court rejected this claim.

Decision Breakdown

The Supreme Court held that gratuity, unlike pension, is a one-time payment that crystallises on the date it is actually paid, and the tax exemption under Section 10(10)(ii) of the Income Tax Act is tied strictly to the amount prescribed under Section 4(3) of the Gratuity Act as it stood on that date. Because the Gratuity (Amendment) Act, 2010 was validly brought into force only from 24.5.2010 (the date the Central Government notified it, as the amending Act itself permitted), there was no basis to treat it as applying retrospectively from 2007. The Court distinguished pension cases like D.S. Nakara, which address recurring monthly benefits, from one-time gratuity payments where a cut-off date tied to financial constraints is constitutionally permissible. The appeal was dismissed and the High Court's order upheld.

Lesson Learnt

A legislative amendment that improves a benefit is not automatically retrospective, unless the law itself says so, the benefit generally applies only from the date the amendment actually comes into force, especially for one-time payments like gratuity.

Official source (sci.gov.in)View Judgment (PDF)

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