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Enhanced tax-free gratuity ceiling to help PSU, private sector employees: Jaitley

The government decided to double the income tax exemption on gratuity income in the Interim Budget to accommodate rising inflation and salary levels. This will result in huge savings for people with long years of service.

twitter-logo BusinessToday.In        Last Updated: March 6, 2019  | 09:20 IST
Enhanced tax-free gratuity ceiling to help PSU, private sector employees: Jaitley
Finance minister Arun Jaitey

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.

Also read: Budget 2019: Piyush Goyal hikes tax-free gratuity limit to Rs 30 lakh

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.

Also read: Parliament passes payment of gratuity bill

Gratuity is a one-time big income for those retiring after years of hard work and it pinches really hard if you have to pay tax on this amount. As salary levels have grown significantly over the years, so has the gratuity amount that employees get. The Modi government had decided to double the income tax exemption on gratuity income in the Interim Budget in order to accommodate rising inflation and salary levels. This move will result in huge savings for people with long years of service.

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.

Also read: 7th Pay Commission: Tax-free gratuity ceiling for private sector 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

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