Gratuity - [Section 10(10)] - Income Tax - Ready Reckoner - Income Tax

GRATUITY [ Section 10(10) ] Gratuity is a sum of money paid by an employer to an employee for services rendered in the company. However, gratuity is paid only to employees who complete 5 or more years with the company. If Gratuity is received by any employee while in employment then it is fully taxable in the hands of employee. While if gratuity is received in case of death or retirement or resignation, then exemption is available up to the following limits: In case of Government employee {Section 10(10)(i))} - Any gratuity received by an employee of Central Government, State Government or local authority is wholly exempt from tax. This exemption is not available to employees of Statutory Corporation. In case of employees covered by Payment of Gratuity Act , {Section 10(10)(ii)} an amount equal to the least of the following will be exempt from tax: 15/26 x Salary last drawn x No. of completed years of service or part thereof in excess of 6 months. Amount specified by the central government Rs. 10,00,000/- [ From 24th May, 2010 to 28th March , 2018 ( Notification No. 43/2010 ) ] Rs. 20,00,000 [ From 29th March, 2018 ( Notification no. 16/2019 ) ] Gratuity actually received Notes : In case of seasonal establishments, 15 days is substituted by 7 days. Salary includes basic salary and dearness allowance but does not include bonus, commission, overtime wages or any other allowance. Part of a year exceeding six months is taken as a complete year. In case of employees not covered by Payment of Gratuity Act,[ Section 10(10)(iii) ] an amount equal to the least of the following will be exempt from tax: x Average salary of last 10 months preceding the month of retirement x Completed year of service (fraction of a year is ignored) Amount specified by the central government Rs. 10,00,000/- [ From 24th May, 2010 to 28th March, 2018 ( Notification No. 43/2010 ) ] Rs. 20,00,000 [ From 29th March, 2018 ( Notification no. 16/2019 ) ] Gratuity actually received Notes: Salary includes basic pay, dearness allowance to the extent it forms part of retirement benefits and percentage wise fixed commission on turnover. If gratuity is received by an employee from more than one employer in the same previous year or in different previous years the aggregate maximum amount exempt from tax on account of gratuity cannot exceed 20,00,000 (Rs.10,00,000/- upto 28th March 2018). If an employee had also rendered service to any other employer, then period of service to such former employer is also included while calculating completed year of service subject to condition that any gratuity is not received from such former employer. gratuity is exempt if the relationship of employer and employee exist, if such relationship does not exist then the exemption shall not be available. Forfeiture of Gratuity: According to the Payment of Gratuity Act of 1972, an employer holds the right to forfeit their gratuity payment, either wholly or partially despite the employee having completed 5 and more years of service in a company. The only situation where this works is when the employee has been terminated due to disorderly conduct wherein, he/she tries to physically harm individuals during his/her employment.