Gratuity is among the key benefits given by an employer to its employees. The purpose of gratuity is to provide social security to workman after retirement, whether retirement is a result of superannuation, or physical disablement or impairment of vital part of the body. The Payment of Gratuity has been in effect since March 2018, and is an important social security legislation to wage earning population in industries, factories and establishments.

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 Before, implementation of 7th Pay Commission recommendations, the ceiling for gratuities was kept at Rs 10 lakh for central and state government employees. However, on passing of the ACT, that ceiling is now raised to Rs 20 lakh. 

For availing gratuities, it is made mandatory for the employee that he or she has completed a minimum five years of service with their organisation. Gratuities are not available for temporary or intern employees. It needs to be noted that, gratuities are not paid as part of your regular monthly salary, and is only given on retirement.   

(Image source: ClearTax)

According to ClearTax report, the last salary drawn by Rohan is Rs.1 Lakh per month (basic + DA). He is entitled to receive a gratuity of Rs. 11 Lakhs. He has been in employment for the last 19 years and 7 months.

If you are a government employees, then gratuity gains are fully tax exempted for you. However, the private employees have exemption limit at a certain amount.