Gratuity received in case of job switch

Hi Anshul,

Good question about taxability of gratuity received on job switch!

Gratuity Taxability on Job Switch:

1. If gratuity is received from previous employer (private company):

   • If the payment is as per Payment of Gratuity Act, 1972, then gratuity received up to the exempt limit under Section 10(10) is tax-free.

   • Any amount over the exempt limit is taxable as salary income.

2. Exempt Limit (for private sector employees):

   • Exemption is the least of:

     • Actual gratuity received

     • ₹20 lakhs (₹2,000,000) (for AY 2023-24)

     • Calculated gratuity based on formula: 15 days salary × number of years of service

3. **If gratuity received on job switch is from previous employer and paid under the Act, it is treated as retirement benefit and eligible for exemption.

4. If gratuity is received in any other way (not under the Act):

   • It may be taxable as perquisites/salary.

Summary:

Pro Tip:

• Make sure to keep the gratuity payment certificate from previous employer as proof for exemption.