Payment of gratuity for prolonged term of service by an employee is a retirement benefit which is compulsory from enactment of the Gratuity Act, 1972. If the employee is not covered by payment of Gratuity Act then he can obtain benefit of Gratuity under terms of employment. This article explains taxability of Gratuity received by private sector employees who are not covered under Gratuity Act.
When employee receives gratuity under terms of employment then he is not covered under Gratuity Act. 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 for employees not covered by payment of Gratuity Act are as follows: