Gratuity is a loyalty reward that organisations give their employees for the services rendered for the organisation.

Gratuity is payable to an employee when an employee leaves employment after completing at least five years in service with an employer and is payable in the following circumstances:

  • On superannuation (means an employee who attains the age of retirement is said to be in superannuation)

  • On retirement or resignation

  • On death or disablement due to accident or disease (the time limit of 5 years shall not apply in the case of death or disablement of the employee)

For any other employee working in a non-governmental organisation which is covered by Payment of Gratuity Act:

  • If gratuity received by any employee whose employer is covered under the Gratuity Act, 15 days salary as per the last drawn salary of the individual is exempt from tax.

For any other salaried individual who receives gratuity from an employer who is not covered by Payment of Gratuity Act, then the least of the following three amounts are exempt from tax:

  • Rs.10,00,000

  • Gratuity actually received by employee

  • Half month's salary for every year of service that the employee has completed with the employer