What is the maximum tax-free gratuity for private sector employees in India?

For private sector employees covered under the Payment of Gratuity Act 1972, the maximum gratuity exempt from income tax under Section 10(10)(ii) of the Income Tax Act is ₹20 lakh (twenty lakh rupees). This limit was revised from ₹10 lakh to ₹20 lakh in 2018. Any gratuity received up to ₹20 lakh is completely tax-free. Gratuity received in excess of ₹20 lakh is included in taxable income under the head 'Income from Salaries' and taxed at the applicable slab rate.

Is gratuity tax-free for government employees?

Yes. For Central and State Government employees, statutory corporations, and local authorities, the entire gratuity received on retirement or death is tax-free with no upper limit under Section 10(10)(i) of the Income Tax Act. Government employees are not subject to the ₹20 lakh cap that applies to private sector workers.

What happens if I receive gratuity from multiple employers?

If you receive gratuity from more than one employer (for example, from two different jobs across your career), the total tax-free limit of ₹20 lakh applies cumulatively across all employers in your lifetime (for non-government employees). For example, if you received ₹12 lakh from a previous employer, only ₹8 lakh more from the current employer will be exempt (up to ₹20 lakh total). The excess is taxable. When filing your ITR, disclose all gratuity received.

Is gratuity received by the nominee of a deceased employee tax-free?

Yes. Gratuity received by the nominee or legal heir of a deceased employee is fully tax-free in the hands of the nominee. The ₹20 lakh limit still applies, but as death is an exceptional terminal event, typically the full gratuity (which may be modest if the employee died early in service) is within the limit and therefore tax-free.

How is gratuity reported in ITR if it is within the ₹20 lakh exempt limit?

Even if your gratuity is fully exempt (below ₹20 lakh), you must report it in your Income Tax Return. In ITR-1 or ITR-2, the exempt gratuity is reported under 'Exempt Allowances' (Schedule EI or the salary exemption section). Your Form 16 from the employer should already reflect the gratuity as exempt. Do not simply omit it - report it under the exempt income section. Failing to disclose can trigger notices from the Income Tax Department.

Gratuity Tax Exemption India 2026 - How Much Gratuity is Tax-Free?

Written by Suchitra Rao | Updated: April 2026 | 9 min read

Gratuity is one of the most tax-favoured components of retirement income in India. For most private sector employees, up to ₹20 lakh of gratuity is completely exempt from income tax. Government employees enjoy an even better deal - their entire gratuity is tax-free with no cap. This guide explains the tax rules under Section 10(10) of the Income Tax Act, worked examples, and how to report gratuity in your ITR correctly.

Section 10(10): The Gratuity Tax Exemption Framework

Section 10(10) of the Income Tax Act 1961 provides tax exemption on gratuity in three distinct categories:

Section 10(10)(i) - Government employees: Gratuity received by Central Government, State Government, or Defence Service employees is entirely exempt from tax, with no monetary cap.
Section 10(10)(ii) - Private sector employees covered by the Payment of Gratuity Act: The least of the following three amounts is exempt:
1. Actual gratuity received
2. ₹20,00,000 (twenty lakh rupees)
3. 15/26 × last drawn basic salary × completed years of service
Section 10(10)(iii) - Other employees (not covered by Act): The least of the following is exempt:
1. Actual gratuity received
2. ₹20,00,000
3. Half month's average salary × completed years of service (based on average of last 10 months' salary)

Worked Examples: Tax on Gratuity at Different Amounts

Scenario	Gratuity Received	Tax-Free Amount	Taxable Amount
Private sector employee, 10 years, ₹50K basic	₹2,88,461	₹2,88,461 (full)	₹0
Private sector, 20 years, ₹1.2L basic - Act covered	₹13,84,615	₹13,84,615 (full)	₹0
High-salary employee: ₹2.5L basic, 20 years (formula: ₹28.8L)	₹25,00,000 (ex-gratia)	₹20,00,000 (capped)	₹5,00,000
Government employee (any amount)	₹30,00,000	₹30,00,000 (full)	₹0

Lifetime Cumulative ₹20 Lakh Limit for Multiple Employers

The ₹20 lakh exemption under Section 10(10)(ii) and 10(10)(iii) is a lifetime cumulative limit for non-government employees. If you receive gratuity from more than one employer at different points in your career, the total tax-free gratuity across all employers cannot exceed ₹20 lakh in aggregate.

Example: Suppose you receive ₹8 lakh gratuity from Employer A on resignation after 7 years, and ₹15 lakh gratuity from Employer B on retirement after 18 years.

From Employer A: ₹8 lakh (fully exempt; reduces remaining lifetime limit to ₹12 lakh)
From Employer B: ₹12 lakh exempt (remaining limit), ₹3 lakh taxable as salary income

When filing ITR for the year you receive the second gratuity, disclose prior gratuity received and the amount already used against the lifetime limit in the prescribed section.

Gratuity and New Tax Regime

The gratuity tax exemption under Section 10(10) is available under both the old and new tax regimes. Unlike many other salary exemptions and deductions (such as HRA, LTA, or Section 80C) that are not available under the new regime, the gratuity exemption is retained. This makes gratuity one of the few salary components that is fully protected regardless of which tax regime you choose.

How to Report Gratuity in Your ITR

Even if your gratuity is fully exempt (within ₹20 lakh), you must declare it in your Income Tax Return:

Your employer will include gratuity in Form 16, showing the exempt amount under Section 10(10).
In ITR-1 or ITR-2, report the gross gratuity and the exempt portion separately.
The exempt amount is reported under "Exempt Income" (Schedule EI or the salary schedule, depending on ITR type).
If any portion is taxable (above ₹20 lakh), include it under "Income from Salaries."

Failure to disclose exempt income can result in notices from the Income Tax Department, even if no tax is ultimately due.

Related Resources

Disclaimer: This guide is for educational purposes. Tax exemption limits and rules are based on Section 10(10) of the Income Tax Act as applicable in FY 2025-26. Consult a chartered accountant for personalised tax advice, especially if you have received multiple gratuity payments or your employer has paid ex-gratia amounts above the statutory limit.

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