Is Gratuity exempted from Tax?

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Whether the Gratuity amount received by an employee is taxable or not. Are the Taxation rules on the same equal for Private & Public sector employees?

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Asked on October 4, 2019 2:34 pm
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If you are searching for Tax exemption limit on Gratuity, you may be aware of the Gratuity Act 1972.

Recently, the government of India made some changes in the Act, and the ceiling for the employees is now 20 Lakhs.

Let's come to the main question about it, whether this amount is free from tax or not.

As per the recent amendment, the Gratuity of Rs 20 Lakhs is not taxable. However, if someone gets more than this amount, he/she has to pay as per income tax slab rates.

So the question is how an employee will get more than Twenty Lakhs when the maximum limit is only 20 Lakhs.

Let me explain this by a real example.

An employee worked in a firm for 10 years, and then he had resigned from the job. We assume that the person got a Gratuity of Seven (7) Lakh.

Then he had joined another company and worked there for 24 years until retirement from the service. Here the same man gets the Gratuity of 18 Lakh.

Now the total amount received by this official aginst Gratuity is 25 Lakhs.

So he/she has to pay the Taxes for an additional Five Lakhs (Rs 5,00,000/-). Up to 20 Lakh limit of Gratuity is free from the income tax.

I hope this will clear the doubt of exemption.

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Answered on October 7, 2019 4:13 pm

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