Pay no tax on gratuity below Rs 10 lakh

Like government employees, private sector employees will henceforth be exempt from paying income tax on the gratuity they earn up to a limit of Rs 10 lakh, the Union Cabinet decided on Thursday. Formerly, the ceiling for the private sector was Rs 3.5 lakh.

Like government employees, private sector employees will henceforth be exempt from paying income tax on the gratuity they earn up to a limit of Rs 10 lakh, the Union Cabinet decided on Thursday. Formerly, the ceiling for the private sector was Rs 3.5 lakh.

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For government employees, the Centre had already earlier accepted the recommendations of the Sixth Pay Commission to raise the limit to Rs 10 lakh.

After the income tax relief in the Budget, this is yet another bonanza for the middle class.

An employee is entitled to gratuity after five years of continuous service with the same employer.
It is considered part of an employee’s income and hence, is taxable.