Govt increases gratuity tax exemption limit to Rs 25 lakh

The Centre on March 11, 2024, decided to increase the tax exemption limit on gratuity. The government has increased the tax exemption limit on gratuity to Rs 25 lakh from earlier 20 lakh. Earlier, this limit was hiked to Rs 20 lakh from Rs 10 lakh in a notification dated March 8, 2019.

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Recall here that India’s Income Tax (I-T) law treats gratuity as salary and taxes it under ‘income from salary’. In case the gratuity is paid to the nominee of an employee due to his death, the gratuity amount is paid under ‘income from other sources’.

What is gratuity?

Gratuity is a benefit that salaried employees in India enjoy under the provisions of the Payment of Gratuity Act, 1972. Gratuity can be termed a reward of sorts for employees who service a company for a specific period.

According to the Supreme Court, the objective of providing a gratuity scheme is to “provide a retiring benefit to workmen, who have rendered long and unblemished service to the employer and thereby contributed to the prosperity of the employer”.

Eligibility criteria for gratuity payment

Gratuity is paid at the time of an employee’s retirement or termination or death. Under Section 4 (1) of the Act, you need to meet one of the following criteria to claim gratuity from your employer:

You should have quit your job after 5 years of work
You are retiring
In case of your superannuation*
In case you suffer disability due to illness or accident
In case the employee passes away**

*Superannuation means the attainment of such age by an employee as is fixed in the contract or conditions of service about the age at which the employee shall vacate the job.

**If an employee dies, the gratuity is paid to his nominee. In case there is no nominee, the gratuity amount will be paid to the deceased’s legal heirs.

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Sunita Mishra

An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.

In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
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