Gratuity from LIC to agents

Your father is LIC agent this means he is Non government employee however he coves under Gratuity Act 1972 and as per the rule exemption available for the same is the least of the following:

Rs. 20 lakhs after 7th pay revision or

Last drawn salary (Basic +DA)* 15/26* no of year service done (if in last year it is more than 6 months then that year has been considered as a complete year of service)

Also, you have to keep this fact in mind that this exemption of Rs, 20 lakhs is for all the services during the lifetime of the employee it means that if any gratuity exemption has already been claimed in his previous service then the same will be reduced from  20 lakhs and balance can be claimed in this service.

In your case your father should not have claimed the exemption under gratuity for more than Rs. 18 lakhs in any previous service.    

It is not salary. No relation as employer or employee, but is commission earner agent. Under which section of Income Tax he is entitle for exemption ?.

No exemption, he is a LIC agent, gratuity received will be taxable in his hands.  And also TDS has also been deducted on that amount by the LIC