Dear Mr. Sinha,
I appreciate your effort in clarifying this point as it will help many freshers / executives in HR departments. I had not mentioned this aspect simply because it is accepted belief that anyone who knows gratuity will know that the company will first calculate what is actually due, and rarely a company pays more than what is due to the employee, though I have seen in some cases of Sr. management executives, to sweeten the deal (at the time of appointment) the management in order to retain the employee for minimum certain period promises to pay an extra amount which is ex-gratia but is inappropriately termed and clubbed with gratuity. My emphasis was on the point that if at all the amount of gratuity which is calculated and the said calculation of eligible gratuity amount exceeds Rs. 10 lakhs, in such cases as you rightly said the amount is taxable beyond Rs. 10 lakhs. However in my opinion any amount paid over and above the actual eligible gratuity calculated to any employee cannot be termed as gratuity, I am taking your e.g. to illustrate:
"Suppose basic+DA is 50,000 and total year of service is 20 years...then as per the Payment of Gratuity Act the calculated gratuity amount is Rs. 5,76,923.
In this case if the employer pay 7 lacs as gratuity then 7,00,000 - 5,76,923 = Rs. 1,23, 077 will be considered as salary and is taxable."
Here Rs. 5,76,923/- is GRATUITY & Rs. 1,23,077/- is NOT SALARY or gratuity, it is termed as EX-GRATIA and it is taxable.
I hope this helps many here to understand the difference.