What is Gratuity? Is Income Tax Exempted on Gratuity?

What is Gratuity? Gratuity is a lump sum that a company pays when an employee leaves an organization and is one of the many retirement benefits offered by a company to an employee. In India, gratuity rules and requirements are set out under the Payment of Gratuity Act, 1972. An employer may also choose to pay gratuity outside of that which is required by this Act. Income Tax Exemption on Gratuity: Gratuity may be one of the components of your CTC. It is taxed under the head Income from Salaries. Some portion of gratuity received is exempt from tax as per Section 10(10) of the Income Tax Act and we will see how exemption is calculated. Rules relating to Gratuity which are applicable to an Employer are set out in Payment of Gratuity Act 1972. When is Gratuity Payable as per Payment of Gratuity Act 1972: Gratuity is payable to an employee when an employee leaves employment after completing at least five years in service with an employer – so this is payable – On superann...