Is intermediate gratuity paid exempted from tax? Confused because it is not a retirement benefit

Dear All,

I was associated with a proprietary firm for the last 6.5 years. I resigned in February 2019 to take up a position with another private limited company. I was paid gratuity for the period I had my services. Now my question is, is this gratuity paid exempted from tax? I am confused because it is not a retirement benefit, but I was paid the amount specifically under the head of gratuity. Please help with the matter. Thanks in advance.

Regards,
D. Prashant

Is your organization covered under the Payment of Gratuity Act? If so, what is the amount of gratuity received by you?

The rule for gratuity for those covered under the Payment of Gratuity Act is as follows:
Last salary drawn (Basic pay + DA) * 6 years * 15/26
Maximum exemption is Rs 10 lakhs.
Any amount of gratuity received above 10 lakhs will be taxable.
Another point to remember is that 10 lakhs is the maximum gratuity amount you can receive in your entire service/employment life from all employers combined.

If you have received gratuity in the past and claimed exemption, that amount will be reduced from the gratuity eligible for exemption. Therefore, it is essential to familiarize yourself with the rules regarding Gratuity and understand it from an Income Tax perspective.

Dear Prashanth,

I think that you are under the impression that gratuity is payable only on retirement after attaining the age of superannuation, and this has prompted you to coin the title as "intermediate gratuity" and raise the above query. Gratuity is a one-time lump sum payment payable on the termination of employment under any particular employer/establishment due to resignation, retirement, death, dismissal, or disablement caused by accident or disease. Therefore, there is no such distinction as intermediate or final gratuity.

Your service under the proprietary firm came to an end consequent on your resignation, and what you were paid was the gratuity amount probably paid for your entire service of 6.5 years. As per the latest amendment, the ceiling of gratuity stands at Rs. 20 lakh. Income tax is leviable only when the amount of gratuity exceeds this amount; otherwise not.