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Is gratuity taxable in India?
Yes, gratuity is taxable in India. However, there are some exemptions available.
How to calculate gratuity
The gratuity amount is calculated as follows:
Gratuity = (Last drawn salary * 15 * Service length)/26
Where:
- Last drawn salary: The employee's last drawn salary before retirement or resignation.
- Service length: The employee's service in years, rounded off to the nearest fraction of a year.
- 15: The number of days of gratuity for each year of service.
- 26: The number of working days in a month.
Example:
An employee with a last drawn salary of ₹50,000 and a service length of 5 years would be entitled to a gratuity of ₹3,84,615.
How to pay gratuity
The employer is responsible for paying gratuity to the employee. The gratuity amount must be paid within 30 days of the employee's retirement or resignation.
Taxation of gratuity
The gratuity amount received by an employee is taxable as income from salary.
However, the following exemptions are available:
| Government employees | The entire gratuity amount received by government employees is exempt from tax. |
| Non-government employees | The first ₹20 lakh of the gratuity amount received by non-government employees is exempt from tax. The remaining amount is taxable as income from salary. |
Conclusion
Gratuity is taxable in India. However, there are some exemptions available. Government employees are fully exempt from gratuity tax, while non-government employees are exempt for the first ₹20 lakh of the gratuity amount received. The remaining amount is taxable as income from salary.
