As I mentioned, in India, the gratuity tax exemption limit is partially exempt from income tax under Section 10 (10) of the Income Tax Act. The maximum tax-exempt gratuity has been raised to Rs 20 lakh, replacing the earlier cap of Rs 10 lakh.
For private-sector employees covered under the Payment of Gratuity Act, 1972, the exempt amount is the least of these three:
The actual gratuity received
The statutory limit of Rs 20 lakh
The computed gratuity.
Employees not covered under the Act follow a slightly modified computation. Exemption is the lowest among the actual gratuity received, Rs 20 lakh, or half the average salary (basic + DA) of the last 10 months multiplied by years of service.
For government employees, gratuity, including death or retirement benefits, is entirely exempt from tax, with no cap, provided it’s paid under prescribed rules.
I hope you found this information helpful.
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Would you like to know the gratuity tax exemption limit? Gratuity is a lump sum benefit paid by employers to employees after retirement, resignation, death, or disablement intended as a gesture of appreciation for service rendered. Under Section 10(10) of the Income Tax Act, this payment may be exempt from tax up to a specified limit, and the rules differ based on employment type. For government employees (Central, State, defense, local authorities), entire gratuity received is fully exempt.
What is the Gratuity Tax Exemption Limit India?
Recently, with an increase in Dearness Allowance (DA), government employees can now receive up to Rs. 25 lakh tax free gratuity, a ceiling set under service rules, not the tax law.
For private-sector employees covered by the Payment of Gratuity Act, 1972, the exemption applies on the least of:
Actual gratuity received,
Rs. 20 lakh (recently doubled from 10 lakh), or
Gratuity calculated as (Last drawn salary × 15/26 × years of service).
For private employees not covered under the Act, the formula changes: One half of average salary (basic + DA) of the last 10 months × years of service, subject to the Rs. 20 lakh cap.
Amounts exceeding these exemption limits are taxable as “Income from Salaries”. However, you can reduce the tax impact by claiming relief under Section 89 for lump sum receipt in some cases.
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What Is Gratuity Tax Exemption Limit?
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2025-06-19T14:43:44+00:00 2025-06-19T14:43:46+00:00Comment
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