Gratuity is a lump sum amount paid to employees at time of retirement or resignation. It is covered under Gratuity Act, 1972.
Gratuity is the reward given in the form of money by an employer to his employee for being loyal to the company and completing 5 or more than 5 years of service in the same company.Various countries have different gratuity limit. In India, this limit is Rs.20 lac.
Gratuity is a kind of superannuation. When a person completes 5 or more years of his service in the same company then he is eligible to get gratuity.
The criteria for gratuity payment is given below.
The criteria of completing 5 years of employment will be relaxed in case of death or permanent disability caused due to an accident. In this case, the employer will pay gratuity for 15/26 days of every completed year of service.
In the current situation all the government employee has a tax benefit on their gratuity. There will be no tax on the amount received as gratuity for government employees for state government, central government or a local authority.For non-government i.e. private sector or public sector employee’s tax exemption is depending upon either the employer i.e. company is covered under gratuity act or not.
When a person is working in a private sector and his employer company is covered under gratuity act then he can get tax exemption on his half months salary i.e 15 days salary of every year of his employment.
When your employer company is not covered under the gratuity act then you can get tax exemption on any one of the three options given below. Whichever is less will be considered for exemption –