## Gratuity [Section 10(10)]

Gratuity is a retirement benefit. Its taxability depends on whether it is received during service or as a death-cum-retirement gratuity, and on the type of employer.

### Key rules

Gratuity received during service is fully taxable for both Government and non-Government employees.
Only death-cum-retirement gratuity is eligible for exemption under Section 10(10).
The lifetime exemption ceiling for lump-sum gratuity is ₹20,00,000 — this limit applies across the whole working life, even if gratuity is received from two or more employers.
The exemption under Section 10(10) is available irrespective of the tax regime (old or new).

### Meaning of "Salary" for gratuity computation

The definition of salary changes with the type of employee/computation:

Salary = Basic + any D.A. (one variant)
Salary = Basic + D.A. (to the extent it forms part of retirement benefits) + Commission (computed as a fixed % of turnover)

### Average salary

Where average salary is required, it means the average of the 10 months immediately preceding the month of retirement.

⚠️ Common exam mistakes

Applying the ₹20 lakh exemption separately for each employer — the limit is a single lifetime ceiling across all employers.
Treating gratuity received during the period of service as exempt — it is fully taxable.
Using average salary of 10 months preceding the date of retirement instead of preceding the month of retirement for gratuity.
Assuming the exemption is lost under the new tax regime — Section 10(10) applies under both regimes.

Bare-Act text Section 10(10) · Income-tax Act, 1961 · click to expand

Only Death cum retirement gratuity is eligible for exemption and the gratuity received during the service is fully taxable for both Government and non-government employee. The exemption for lump-sum gratuity is limited to Rs. 20 Lakhs throughout the lifetime of the employee (received from 2 or more employers doesn't matter). Exemption under section 10(10) would be available irrespective of the tax regime.

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Gratuity exemption [Section 10(10)] — meaning of salary

⚠️ Common exam mistakes