Gratuity Exemption limit AY 2017-18 under Income Tax Act

By | February 28, 2017
(Last Updated On: June 13, 2018)

Gratuity Exemption limit AY 2017-18 under Income Tax Act

[ CIRCULAR NO. 1/2017 [F.NO. 275/192/2016-IT(B)], DATED 2-1-2017] 

Death-cum-retirement gratuity or any other gratuity is exempt to the extent specified from inclusion in computing the total income under Section 10(10) of Income tax Act . Any death-cum-retirement gratuity received under the revised Pension Rules of the Central Government or, as the case may be, the Central Civil Services (Pension) Rules, 1972, or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or any payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defence service is exempt. Gratuity received in cases other than those mentioned above, on retirement, termination etc is exempt up to the limit as prescribed by the Board. Presently the limit is Rs. 10 lakhs w.e.f. 24.05.2010 [ Notification no. 43/2010 S.O. 1414(E) F.No. 200/33/2009- ITA-1 dated 11th June 2010].

Enhancement of Gratuity Limit w.e.f. 29.03.2018.

Gratuity Tax Free Limit increased to Rs 20 Lakh : Notification

Relevant Notification no. 43/2010

NOTIFICATION NO.SO 1414(E) [NO.43/2010 (F.NO.200/33/2009-ITA-I)], DATED 11-6-2010

In exercise of the powers conferred by sub-clause (iii) of clause (10) of section 10 of the Income-tax Act, 1961 (43 of 1961), and in supersession of Ministry of Finance, Department of Revenue, Notification No. S.O. 287, dated the 20th January, 1999 the Central Government, having regard to the maximum amount of any gratuity payable to employees, hereby specifies ten lakh rupees as the limit for the purpose of the said sub-clause in relation to the employees who retire or become incapacitated prior to such retirement or die on or after the 24th day of May, 2010 or whose employment is terminated on or after the said date.

Relevant Extract of Section 10(10) of Income tax Act

Incomes not included in total income.

10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included—

(10)        (i) any death-cum-retirement gratuity received under the revised Pension Rules of the Central Government or, as the case may be, the Central Civil Services (Pension) Rules, 1972, or under any similar scheme applicable to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said Rules) or to the members of the all-India services or to the members of the civil services of a State or holders of civil posts under a State or to the employees of a local authority or any payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defence services ;

(ii) any gratuity received under the Payment of Gratuity Act, 1972 (39 of 1972), to the extent it does not exceed an amount calculated in accordance with the provisions of sub-sections (2) and (3) of section 411 of that Act ;

(iii) any other gratuity received by an employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment, or any gratuity received by his widow, children or dependants on his death, to the extent it does not, in either case, exceed one-half month’s salary for each year of completed service, 13[calculated on the basis of the average salary for the ten months immediately preceding the month in which any such event occurs, subject to such limit14 as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government] :

Provided that where any gratuities referred to in this clause are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income-tax under this clause shall not exceed the limit so specified  :

Provided further that where any such gratuity or gratuities was or were received in any one or more earlier previous years also and the whole or any part of the amount of such gratuity or gratuities was not included in the total income of the assessee of such previous year or years, the amount exempt from income-tax under  this clause 16[shall not exceed the limit so specified] as reduced by the amount or, as the case may be, the aggregate amount not included in the total income of any such previous year or years.

17[* * *]

Explanation.18[In this clause, and in clause (10AA)], “salary” shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule ;]


11. The limit laid down under section 4(3) of the Payment of Gratuity Act, 1972 [as amended by the Payment of Gratuity (Amendment) Act, 2010, with effect from 24-5-2010] is Rs. 10,00,000.

13. Substituted for “calculated on the basis of the average salary for the three years immediately preceding the year in which the gratuity is paid, subject to a maximum of *thirty-six thousand rupees or twenty months’ salary so calculated, whichever is less” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

*Substituted for “thirty thousand rupees” by the Finance Act, 1983, w.r.e.f. 1-4-1982.

14. Rs. 10,00,000 has been specified as the limit in case of retirement, etc., on or after 24-5-2010 vide Notification No. SO 1414(E), dated 11-6-2010.

16. Substituted for “shall not exceed *thirty-six thousand rupees” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

*Substituted for “thirty thousand rupees” by the Finance Act, 1983, w.r.e.f. 1-4-1982.

17. Omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. Original third and fourth provisos were inserted by the Finance Act, 1983, w.r.e.f. 1-4-1982.

18. Substituted for “In this clause” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

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