Salary income in the year of retirement: gratuity, commuted pension, leave salary and provident fund

Assumptions

1. Dearness allowance is 60% of basic salary throughout; basic salary was ₹64,000 a month until 31/3/2026 and ₹70,000 from 1/4/2026 (after the increment of ₹6,000).
2. Mr. Ravi is not covered by the Payment of Gratuity Act, 1972, as the question says, and is not a government employee.
3. He is taxed under the old regime, as the question says, so the standard deduction is ₹50,000 (section 19(1), Table: Sl. No. 2(b)).

Salary for the purpose of exemptions (section 19(2)(b))

Salary means basic salary plus dearness allowance that forms part of retirement benefits (50% of 60% = 30% of basic).

(Basic: ₹64,000 × 4 + ₹70,000 × 6 = ₹6,76,000; ₹64,000 × 3 + ₹70,000 × 7 = ₹6,82,000.)

Gratuity (section 19(1), Table: Sl. No. 6, and section 19(2)(a))

Commuted pension (section 19(1), Table: Sl. No. 8)

He commuted two-thirds of his pension for ₹5,10,000, so the full commuted value is ₹5,10,000 × 3/2 = ₹7,65,000. Having received gratuity, he is exempt on the commuted value of one-third of the pension, its commuted value being worked out with regard to his age and health, the interest rate and the officially recognised mortality tables (here worked back from the sum received for two-thirds): ₹7,65,000 × 1/3 = ₹2,55,000. Taxable commuted pension = ₹5,10,000 − ₹2,55,000 = ₹2,55,000.

Uncommuted pension: November–December 2026 at ₹30,000 = ₹60,000; January–March 2027 at one-third, ₹10,000 = ₹30,000; total ₹90,000.

Leave salary (section 19(1), Table: Sl. No. 14)

Earned leave is counted at no more than 30 days for each year of actual service: 18 × 30 = 540 days, less 420 days availed, leaves 120 days at his credit.

Provident fund (Schedule XI, Part A, paragraphs 6 and 8, with Finance Act, 2026, section 127)

1. Employer's contribution ₹10,400 a month, ₹72,800 for April–October 2026: Finance Act, 2026, section 127 substitutes paragraph 6, which now deems only excess interest to be income, so the employer's contribution is no longer tested against 12% of salary. It is a perquisite only so far as the employer's contributions to his accounts in a recognised provident fund, the pension scheme of section 124(1) and an approved superannuation fund together exceed ₹7,50,000 in the tax year (section 17(1)(h)). ₹72,800 is well below that, and no contribution to the other two is given, so nothing is taxable.
2. Interest credited ₹54,000 at 12%: the part above the rate fixed by the Central Government by notification, 9.5%, is taxable (paragraph 6 as substituted): ₹54,000 × 2.5/12 = ₹11,250.
3. The lump sum of ₹18,00,000 from the recognised fund is exempt, as he has rendered more than five years' continuous service (paragraph 8(1)(a)).

Computation of income under the head Salaries for tax year 2026-27

The ₹25,000 he spent on medical treatment gives no deduction from salary; the medical allowance is fully taxable.