Question

Lerato elected to retire from employment 30 31 August 2018, the day after he celebrated his 60th birthday. His income and deductions for the year of assessment ended 28 February 2019 were as follows:

Salary (March to August 2018) R 90 000
Lump sum gratuity received from his employer on his retirement
On 31 August 2018 (severance benefit) R 50 000
Retirement fund lump sum benefit on commutation of annuities from pension
Fund on 31 August 2018 R542 500
Special remuneration received as a member of a proto-team R25 000
Pension fund contributions (March to August 2018) R 6 750
Capital gain (proceeds less base cost) R60 000
Lerato had never previously received any lump sum benefits. He had been a member of the pension fund for 35 years, and all of his contributions to the fund had previously been allowed as deductions for tax purposes. His taxable income for the previous year of assessment was R124 000, including taxable capital gains of R4 000.
Calculate the normal tax payable by Lerato for the year of assessment ended 28 February 2019

Answer 1

Calculation of  the normal tax payable by Lerato for the year of assessment ended 28 February 2019 is hereas under:

INCOME UNDER THE SALARY

1) Salary (March to August 2018) R 90000

2) Lump sum gratuity received R 50000

Less : Exempted Gratuity (See Note 1) R 50000 Nil

3) Benefit on commutation of annuities from pension Fund   R 542 500

Less: exempted pension (See Note 2) R 542 500 Nil

4) Special remuneration received as a member of a proto-team R 25000

TOTAL Income under the head Salary R 115000

INCOME UNDER THE CAPITAL GAINS R 60000

GROSS INCOME R 175000

DEDUCTION OF contribution to pension fund R 6750

Net Income R 168250

AS lncome of Lerato is below taxable limit , he is not liable to pay any tax.

Note 1. Calculation of exemption of Gratuity

The least of the following is exempt from tax:

• Last salary (basic + DA)* number of years of employment* 15/26; 15000*35*15/26 = 302884

Basic Salary = 90000/6 = 15000 , Number of years of employment = 35 assumed as Lerato is contibuting in  pension fund from the last 35 years.

   . Rs. 20 lakhs (which has been hiked from Rs. 10 Lakh as per the amendment);

• Gratuity Actually received is 50000

Therefore, 50000 is the least amount, hence all gratuity is exempted from tax.

Note 2 : Commuted pension is exempt from tax.