The govt raised the income tax (IT) exemption limit on gratuity from Rs 3.5 lakh to Rs 10 lakh, with effect from May 24,2010.
The Payment of Gratuity (Amendment) Bill, 2010, relating to the exemption was passed by Parliament in the Budget session. Initially, the Sixth Pay Commission had raised the limit for central government employees and the Cabinet later extended it for the private sector employees as well.
On completion of five years service, the employees are entitled to payment of gratuity at the rate of 15-day wages for every completed year of service or part of it in excess of six months subject to a maximum of Rs 3.5 lakh. However, gratuity is considered an income and the employee who receives it is liable to pay tax on it. However, gratuity up to Rs 3.5 lakh is exempt from tax under the provisions of Section 10(10) of the Income Tax Act, 1961.
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The Payment of Gratuity (Amendment) Bill, 2010, relating to the exemption was passed by Parliament in the Budget session. Initially, the Sixth Pay Commission had raised the limit for central government employees and the Cabinet later extended it for the private sector employees as well. 
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