According to Finance Minister Arun Jaitley, the government's recent move to double the tax-free gratuity limit to Rs 20 lakh will benefit public as well as private sector employees. "Income Tax Exemption for Gratuity under Section 10(10)(iii) of the Income Tax Act has been enhanced to Rs. 20 lakh. Would benefit all PSU employees and other employees not covered by Payment of Gratuity Act," he tweeted yesterday.
As per Section 10 (10), an employee is eligible for gratuity on retiring after at least five years of continuous, full-time employment with an organisation employing 10 or more people.
The government had doubled the limit for tax-free gratuity to Rs 20 lakh in the private sector back in March last year with the passing of the Payment of Gratuity (Amendment) Bill, 2018. After implementation of the 7th Central Pay Commission, the ceiling of gratuity amount for central government employees, too, doubled to Rs 20 lakh.
According to Cleartax, the amount of gratuity can be calculated using the following formula: Last drawn basic salary along with dearness allowance X number of years in service X 15/26. Assume you have worked with ABC company for a period of 15 years and your last drawn basic salary along with dearness allowance was Rs 30,000. Hence, the gratuity you are looking at is Rs 30000 x 15 x 15/26 or Rs 2,59,615.
With PTI inputs