What are the tax benefits of gratuity?

These are the tax benefits of gratuity:

For Government employees , the entire amount they get is exempt from tax.

If you are not a government employee but are covered under the Act, you get tax exemption for an amount that is the lower of the following:

a) Actual gratuity received;

b) 15 days Basic and DA for each completed year of service or part thereof in excess of six months (according to calculations in the example above);

c) Rs. 20 lakh ( Rs. 10 lakh earlier).

Say, in the example above, your employer paid you gratuity of Rs. 5,00,000, which is more than the Rs. 3,46,154 actually payable under the law. You will enjoy tax exemption on Rs. 3,46,154 and the surplus Rs. 1,53,846 will be subject to tax.

Consider another example in which the gratuity payable to you as per the formula comes to Rs. 15 lakh and the employer pays you the amount.

Until now, the current cap on gratuity payable and tax exemption was Rs. 10 lakh. So, Rs. 10 lakh was tax exempt and the balance Rs. 5 lakh was taxed. But now, after the President gives his assent to the amended Act, the gratuity and tax-exempt cap will increase to Rs. 20 lakh.

So, the entire Rs. 15 lakh that you get in the above example will become tax-exempt. Also, employers will be mandated to give the gratuity sum as per the calculations up to Rs. 20 lakh; earlier, they could restrict their payout to Rs. 10 lakh.

Note that the total tax exemption on gratuity amounts received, including those from previous employers in earlier years, cannot exceed Rs. 20 lakh ( Rs. 10 lakh earlier.)

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