What is gratuity and what is tax treatment of gratuity. To calculate gratuity tax treatment in advance use: https://tax2win.in/tax-tools/gratuity-calculator to know more about gratuity: https://blog.tax2win.in/need-know-gratuity/

1. PAYMENT OF GRATUITY
ACT, 1972
Gratuity is an important component of salary and understanding
it properly is paramount for saving tax for salaried individuals.

2. NWR
Gratuity is a sum of money paid by an employer to its employee at
the end of the period of his/her employment as a mark of recognition
for contributing to the company.
In other words, it is one of the retirement benefits offered by an
employer to an employee upon Retirement / leaving a job.
For Government employees , whole amount of gratuity is exempted
while for others exemption is as per section10(10) of Income Tax
Act,1961.
What is Gratuity?

3. Applicability
 Every factory, mine, oilfield, port, railways, plantation, shops,
establishments or educational institution
 having 10 or more employees on any day in the preceding 12 months
Note:
 Gratuity will remain entitled to even if the number of employees goes
below 10 after the Act becomes applicable to your employer once.
 Act does not apply to Apprentices and persons who hold civil post
under the central govt. or state govt.

4. When is gratuity payable?
Only after completing five years of continuous service with the same employer,
employee will be eligible to receive the gratuity benefit.
It is payable:
 On Superannuation (or) Retirement.
 On Resignation (or) Termination
 On death or Disablement due to accident or disease. (Even if service is of less
than 5 years).

5. Tax Treatment of Gratuity
Gratuity is taxable when it is so received under the head Income form salary. An employee
can claim exemption maximum up to Rs. 10, 00,000.
However tax treatment varies according to various categories of employees as follows:
Fully exempt from tax
Government employee
Maximum exemption from tax-
Least of the following:
• Actual Gratuity received
• Rs. 10,00,000/-
• No. of completed years of
service or part there of in
excess of 6 month *
15/26* salary last drawn
Non-government employee
covered under payment of
Gratuity Act 1972
Non-government employee
not covered under payment
of Gratuity Act 1972
Maximum exemption from tax-
Least of the following:
• Actual Gratuity received
• Rs.10,00,000/-
• (½* Average salary *
completed year of service
(part of the month not
considered)

6. Employer has a right to forfeit gratuity in case employee is being terminated due to
misconduct or any other act of violence.
Employer is responsible to determine the gratuity and pay the same within 30 days of
gratuity becomes payable.
After completing one year of service, an employee is eligible to file nomination in Form F.
In case gratuity paid to the nominee or legal heir, continuous service of five years is not
applicable
Madras high court ruling states that an employee is eligible for gratuity even if he
completes 240 days in the fifth year.
POINTS TO REMEMBER:
In case gratuity is received from more than one employer during the previous year,
maximum exemption allowed is up to Rs.10,00,000.
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7. Thank You!
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