Understanding Gratuity Limits: How Much Is Tax-Free and Where to Find Proof?

Please help me. What is the maximum limit amount to be paid as gratuity and will be exempted under Income tax? Kindly also provide any written document as support.

Regards, Milind Shende

The maximum amount of gratuity payable under the Payment of Gratuity Act, 1972 is Rs. 3.5 lakh. The amount received is not taxable.

Regards,
Madhu.T.K

Dear Madhu/Milind,

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) states that an employer can cap their liability to a maximum of Rs. 3.5 lakh per employee, but nothing in the law prohibits them from providing a better benefit than the one mentioned.

Although the Income Tax Act specifies that as long as the gratuity amount does not exceed 8.33% of an employee's annual salary, it is not taxable even if it crosses the 3.5 lakh limit (Ref. Income Tax Act RR 98 to 111).

There are companies that pay gratuity without a cap, meaning an employee can accumulate gratuity as long as they work, even if it exceeds the 3.5 lakh limit.

In the 6th Pay Commission, the maximum amount of gratuity has been enhanced to Rs. 10.00 lakhs. Is this amount payable to other government/government undertaking employees as well?

Pay commission declaration is for government employees, whereas we have been discussing the Payment of Gratuity Act, 1972. The gratuity payable to government employees is entirely different from the one specified in the aforementioned Act.

Regards,
Madhu.T.K

Sec 4 of the Payment of Gratuity Act, 1972 lays down that nothing in the section shall prohibit the employee from receiving a greater amount of gratuity than the minimum prescribed. If the employer is offering better terms in gratuity, the employee can accept it. Up to 3.5 lakhs is exempted.

Dear Pay Commission,

Recommendation is different, but we will also get an amendment very soon in the payment of gratuity act.

Thank you.

J.S. Malik

Milind Shende

Friend,

According to the recent amendment made to the Payment of Gratuity Act, the maximum amount payable to an employee is Rs 3.5 lakh provided he completes a continuous period of 5 years under the same employer. The provisions of income tax are not applicable for gratuity, but if an employee deposits the said amount in any bank, the interest payable on the gratuity amount is liable for income tax deduction.

NVRao

Which amendment took place to limit the gratuity to Rs. 3.5 lakhs? Because if that is the case, companies are still providing gratuity based on 8.33% of the base salary, which will exceed the mentioned limit.

Regards,
Jimmy Chauhan

I would like to know that I was officially relieved from a private school after completing 13 years. However, the management didn't settle any gratuity and earned leave surrenders encashment. Is there any method to get gratuity and earned leave encashment? Please advise me.

Balu

Hi,

The gratuity limit has been increased from 3.5L to 10L, and the same is fully tax-exempt. However, the circular is still awaited.

RK Sinha

Can anybody guide me on how to calculate Gratuity payment?

Regards,

Madhura.

Hi,

Payment of Gratuity Act, 1972

Object: It is an Act to provide for a scheme for the payment of gratuity to employees engaged in factories, mines, oilfields, plantations, ports, railway companies, and shops or other establishments.

Applicability: Any Employer of the above-noted establishments where 10 or more persons are employed or were employed on any day of the preceding 12 months is liable to pay gratuity to its employees. Once the Act becomes applicable, it continues even if the number of employees falls below ten.

Entitlement: Gratuity is payable to an employee (nominee - in case of the death of an employee) who has rendered continuous service of five years or more on his termination of employment, superannuation, retirement, or resignation. Completion of continuous service of five years is not necessary where the termination of employment is due to the death of disablement.

Calculation:

(Last Wage drawn i.e., basic + DA) x 15
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26 x the number of completed years of continuous service (six months or less to be ignored and more than six months to be counted as a full year)

Maximum Limit: Rs.3.5 lacs. (w.e.f 24-09-1997), the same has been extended up to Rs. 10L

Time Limit for application to the employer: The Employee has to make an application in Form-I to his employer within 30 days from the date the gratuity becomes payable.

Gratuity Act Amendment India 2010 (Gratuity Calculation and Payment). This is good news for all employees, especially government employees. The Gratuity limit has been raised from 3.5 lacs to 10 lacs. This will give an advantage to both private and public sector employees. According to this new amendment, the 10 lacs on gratuity are Tax-free.

You can calculate your gratuity online over this link.

Calculate Gratuity

Hi, is there any pay limit for gratuity? If I am receiving 18 lakh as gratuity, how much of it is taxable and how much is non-taxable?