I have recently completed 5 years of service and may receive gratuity from my employer. Can you please tell me whether gratuity is taxable in India if it is received after 5 years?
Gratuity is a retirement benefit paid by an employer to an employee as a token of appreciation for long-term service. In India, gratuity becomes payable after completing 5 years of continuous service (except in case of death or disability, where it may be paid earlier).
When it comes to taxation:
1. For government employees – Gratuity received is fully exempt from tax.
2. For non-government employees covered under the Payment of Gratuity Act, 1972 – Gratuity is exempt up to the least of the following:
• ₹20,00,000 (lifetime limit),
• Actual gratuity received, or
• 15 days’ salary for each completed year of service.
3. For non-government employees not covered under the Act – Exemption is calculated differently, but the overall limit of ₹20,00,000 still applies.
• For example, if you receive gratuity of ₹4,00,000 after 5 years of service in a private company covered under the Act, and your eligible exemption comes to ₹3,80,000, then only the balance ₹20,000 will be taxable as part of your income.
You can read the official details on the Income Tax Department website here: