Gratuity Payment Confusion: Can You Receive More Than the Legal Limit and What About Taxes?

Dear Seniors, Please clarify the following matter regarding Gratuity payment:

Gratuity Payment Queries

1. Can an employee be paid more than the ceiling limit as per the act?
2. If so, how much income tax is deductible?

Please attach a copy of the Government Order for my reference.

Regards,
Kunal Banerjee

The gratuity ceiling is Rs. 1,000,000/- (1 million) rupees. Beyond 10 lakhs, additional gratuity can also be paid depending on the employer. Up to this amount, gratuity is tax-free. However, any amount beyond this limit would be taxable as per the income tax slab rates.

Regards,
Jitender

As per my knowledge, there is no limit for paying gratuity to employees. The ceiling limit for exemption in income tax at the time of retirement is ₹10 lakh. Before retirement, the gratuity amount is fully taxable. Seniors, I request you to shed more light on this point.

Regards,
Ashish

Retirement criteria do not impact tax deductions. However, if the gratuity amount exceeds Rs. 10 lakh, it would be taxable.

Regards,
Jitender

I want to add further. If gratuity is calculated as per the Gratuity Act and amounts to 8 lakhs, and the employer pays an additional 2 lakhs under some internal scheme (making the total gratuity payment 10 lakhs), then the additional payment of 2 lakhs will attract income tax provisions. Am I right?

Please refer to the attachment; it is not as you mentioned. The words "Three Lacs Fifty Thousand" have been substituted with "Ten Lacs."

Regards,
Jitender

Total Ceiling: Rs. 10,00,000

Tax Exemption:

• 15 days’ salary (7 days’ in case of employees of a seasonal establishment) based on the salary last drawn for each year of service or part thereof. (15 days’ salary * length of service).

• Rs. 10,00,000/-

• Gratuity actually received.

Whichever is lower.

Explanation - The Gratuity Act does not limit the maximum amount that a person can receive in the form of gratuity. Payment of Gratuity Act 1972 Sec. 4 (5).

Regards

Gratuity payment, the term means it is a payment of gratitude. Since the payment is from the employer to the employee, the same is legalized, and the Payment of Gratuity Act came into force, as per which the maximum limit of payment is up to Rs. 10 lacs (tax-free payment). As the same is a payment of gratitude, there is no restriction on the part of the employer for making over and above 10 lacs, but such payment shall attract tax.

Thanks.

R. K. Nair