Gratuity is retirement benefit paid by the employer for years of loyal and dedicated service. Gratuity received by Government employee is fully exempt from tax. Taxability of Gratuity of a Private Sector employee covered by Gratuity Act is explained in this article.
Gratuity is a gift or gratuitous payment by the employer for prolonged service offered by his employee. After introduction of the Gratuity Act in 1972, Gratuity has become legally compulsory in most of the cases. Certain amount received as Gratuity is exempt from tax. From the 3 conditions mentioned below, the amount which is the lowest is exempt from tax.
After exemption, the balance amount is taxable. Other key considerations while calculating tax exemption on Gratuity are as follows:
If period of service is less than 6 months it shall be ignored. It shall be taken into consideration as a year only if the service period is more than 6 months.
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