Tax Treatment of Gratuity as per Income Tax Act,1961 is covered U/S 10(10) of the Act. In case of retirement, resignation or  termination, you have to consider Income Tax liability on propose receipt of Gratuity. If Gratuity is received by employee himself, it will be taxable under  head salary while if it is received by legal heir on death of employee, It will be taxable under “Income from other sources’ to the extent it is not chargeable to tax as per below mentioned provision. Tax Treatment of Gratuity depends on type of employee viz; Government Employee Employee cover under Gratuity Act Any other Employee Government Employee:  Any death cum retirement  gratuity received by employee of Central Government, State Government or local authority ( Employee of statutory corporation are not covered ) is wholly exempt from tax. Employee cover under Gratuity Act,1972  is exempt from tax to the extent of minimum of either of below three items; 15 day’s Salary ( 7 days per season  in case of employees of seasonal establishments )based on the salary last drawn for every completed year of service or part thereof in excess of 6 months Rs. 10,00,000 ( Rs. 3,50,000 up to 23rd May,2010) Actual … Continue reading Tax Treatment of Gratuity as per Income Tax Act,1961