The directions came on a petition filed by around 25 pensioners who had retired from various posts of the board between 2006 and 2010. Appearing for the petitioners, advocate Raj Kumar Garg informed the court that the board had issued notices to the petitioners that whatever amount had been paid to them as gratuity above Rs. 3.5 lakh, they should deposit tax on it within 20 days else it would be deducted from their pension.
The court was informed that as per the Fourth Pay Commission, gratuity amount up to Rs. 3.5 lakh was exempted from tax. But in the Fifth Pay Commission, the tax exemption limit had been raised up to Rs. 10 lakh on gratuity. The counsel informed that under Section 10 of the Income Tax Act, gratuity amount paid to the petitioners, that was less than Rs. 10 lakh, cannot be taxed.
On this, the court asked the board as to under what act or rules it had decided to deduct tax from petitioners' gratuity, to which the board failed to satisfy the court. The court quashed all notices issued to the petitioners for tax deduction from their gratuity.