Notified in Official Gazette on 18th May 2010, amending the Payment of Gratuity Act, 1972 with revision in maximum ceiling from Rs. 3.5 lakhs to Rs. 10 lakhs.

1. Income Tax liability As per Income Tax Act, Section 10(10), employees has been divided in three categories.

Employee of Central/State Government and Local bodies:
Gratuity received by these employees is fully exempted without any limit.

Employee covered under Payment of Gratuity Act: 
Amount as per Gratuity Act is fully exempted, meaning Income Tax has not defined /set any limit for such employees. As soon as the amount of Gratuity Act, enhanced by the Cabinet as proposed, Income tax Limit will also enhanced.

Other employees
For other employees limit is defined under the Income Tax Act, which is at present INR 3, 50,000. But many PSU’s which are not covered under the Sate or Central Government definition as per SR No 1 and 2 above, has started to pay, gratuity as per Sixth Pay Commission, maximum up to 10 lakhs. So amount in excess of 3.5 lakhs is taxable in hand of such employees. In case if the Limit is enhanced in Payment of Gratuity Act as per SR No.2, even then a separate notification under this sub clause [10(10)(iii) ] is required .The Limit is related to date of retirement /resignation and not to date of receipt.

2. Details in ‘Employees’ definition under Gratuity Act amended to include all types of works irrespective of salary limits

The new definition of “employee” is as follows:

Employees’ means any persons [NOT being an Apprentice] employed for wages in any kind of work (manual or otherwise) or in connection with work of factory, mine, plantation, oil field, Railway Company, port or other establishment. Employees’ definition under Gratuity Act amended to include all types of works irrespective of salary limits.