Gratuity benefit calculation, Eligible for gratuity, Tax on Gratuity

What is the maximum amount that can be received as gratuity benefit?

Gratuity is a benefit given by the employer to employees. A recently approved amendment by the Centre has increased the maximum limit of gratuity. Now it is tax exempt up to Rs 20 lakh from the previous ceiling of Rs 10 lakh, which comes Section 10(10) of the Income Tax Act.

Such exemptions can be claimed by a salaried assessee. Gratuity received by an assesse Other than employee shall not be eligible for exemption u/s 10(10). Example: Gratuity received by an agent of LIC of India is not eligible for exemption u/s 10(10) as agents are not employees of LIC of India.

Who is eligible for gratuity? When is gratuity amount paid?

An employee who has completed five years of continuous service in the same organization is eligible to receive gratuity. The employee will get the gratuity on the termination of the employment after rendering continuous service for not less than five years.

How is Gratuity benefit amount calculated?

The Provision of gratuity are governed by the payment of gratuity act 1972.

Occurrence : 1) on super annuation (attains age of retirement)

2) on resignation

3) on death or any accident

4) minimum of five years to be completed.

Calculation of the amount of gratuity exempted from tax

The least of the following is exempt from tax.

Last salary (basic+DA) * number of years of employment * 15/26
20 lakhs ( which has been hiked from Rs 10 lakhs as per the amendment)
Gratuity Actually received

How is gratuity benefit amount calculated for the employees who are not covered under the gratuity act?


There is no law that restricts on employer from paying gratuity to his employees, even if the organisation is not covered under the payment of gratuity Act.The amount of gratuity payable to the employee can be calculated based on half month’s salary for each completed year.

Calculation of amount of gratuity exempted from tax.

The least of the following is exempt from tax

Last 10 month average salary (BASIC+DA) * number of years of employment * ½.
Rs 10 lakhs ( The hike to Rs 20 lakhs is not applicable for employees not covered under the payment of gratuity act)
Gratuity actually received
Is government employees exempted from tax?

Government Employees

Gratuity paid by the government to government employees is fully exempted from tax.

Drafted by 

Bonnita & Yogita Sirvi

Maniraj Anantham 3 December, 2022
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