Example:-X, an employee of A Ltd., receives ₹ 62,000 as gratuity (he is covered under the Payment of Gratuity Act, 1972). He retires on 31st January, 2015 after service of 29 years and 8 months. At the time of retirement monthly salary of X was ₹ 3,100. Is the entire amount of gratuity exempt from tax?

Chapter No. 03 - Salary - Gratuity - [Sec. 10(10)]

In this case 30 years will be taken as completed year of service.

15 days’ salary = 3,100 x 15/26 = 1,788.46

Out of ₹ 62000 received as gratuity, the least of the following will be exempt from tax:

1. ₹ 53,653.85 (i.e. 1,788.46 x 30)
2. ₹ 10,00,000
3. ₹ 62,000

₹ 53,653.85 being the least of the three sums, is exempt u/s 10(10)(ii).

The balance of ₹ 8,346.15 is taxable for the assessment year 2015-16.

Dated: 10-8-2015