Gratuity Tax Exemption Limit, Explained
By Varun M
Re-verified directly against the tax department for this article, not assumed from an older figure: ₹20 lakh, still current — plus a ₹25 lakh number you may have seen elsewhere, which is something else entirely.
Gratuity Calculator
Work out your gratuity amount, then check it against the exemption limit below.
The short answer
₹20 lakh for private-sector employees — a cumulative lifetime limit across all employers, unchanged since 2019, and confirmed unaffected by the new labour codes.
Where this figure comes from
The exemption was raised from ₹10 lakh to ₹20 lakh via two notifications: S.O. 1420(E), dated 29 March 2018 (for employees covered under the Payment of Gratuity Act, 1972), and S.O. 1213(E), dated 8 March 2019 (for employees not covered under that Act). We checked directly against incometaxindia.gov.in for this article rather than assuming the figure was still current — it is. The Code on Social Security, 2020 (effective 21 November 2025) did not change this exemption limit.
It's a lifetime total, not per job
The ₹20 lakh cap is cumulative across your entire career, not ₹20 lakh per employer. If you received gratuity from an earlier employer and used part of the exemption then, that reduces how much of a later payout can still be exempt.
Worked example
An employee receives ₹24,00,000 in gratuity on retirement, covered under the Payment of Gratuity Act, with no prior gratuity received from an earlier employer:
- Exempt: ₹20,00,000 (the full available limit, since none has been used before)
- Taxable: ₹4,00,000, added to salary income and taxed at slab rate in the year received
Worked example — a second gratuity later in a career
The same employee had already received ₹12,00,000 in gratuity from an earlier employer years before, and used ₹12,00,000 of the exemption at that time. On this later ₹24,00,000 payout, only ₹8,00,000 of exemption remains (₹20,00,000 − ₹12,00,000 already used) — so ₹8,00,000 is exempt and ₹16,00,000 is taxable this time.
The ₹25 lakh figure you might have seen — a different thing entirely
Some sources mention ₹25 lakh in the same breath as gratuity. That figure is the maximum gratuity payout for central government employees under their own service rules, revised effective January 2024 — it has nothing to do with income tax exemption. Government employees' gratuity is fully tax-exempt with no ceiling at all, regardless of this ₹25 lakh service-rules figure. Don't conflate the two ₹X lakh numbers just because they both involve gratuity.
Applies under both tax regimes
Unlike many old-regime-only deductions, the ₹20 lakh gratuity exemption isn't stripped out under the new tax regime — it applies the same way regardless of which regime you've chosen. See the Old vs New Tax Regime Calculator if the taxable portion above ₹20 lakh affects which regime works out cheaper for you.
Death or disablement: no ceiling at all
None of the above applies if the gratuity was paid due to the employee's death or disablement — that's fully exempt with no ₹20 lakh cap whatsoever. See gratuity before 5 years: death or disability for how that exception works.
Related reading
- Is gratuity taxable in India? — the broader taxability picture this exemption limit fits into.
- The 15/26 gratuity formula, explained — work out the gratuity amount itself before checking it against this limit.
- ₹25 lakh leave encashment vs ₹25 lakh gratuity ceiling — if you're weighing this against unused leave too, this ₹25 lakh figure is yet another, unrelated one.
- Leave encashment tax exemption explained — the parallel exit-time exemption, with its own separate ₹25 lakh limit.
FAQ
₹20 lakh for private-sector employees — raised from ₹10 lakh via two 2018–2019 notifications (S.O. 1420(E) and S.O. 1213(E)), and confirmed still current: the Code on Social Security, 2020 (effective 21 November 2025) did not change this figure.
It's a cumulative LIFETIME limit of ₹20 lakh across every employer you've worked for, not ₹20 lakh per job. If you've already used part of the exemption with a previous employer, that reduces how much is left exempt when you receive gratuity again later in your career.
That's a different thing entirely — the maximum gratuity PAYOUT for central government employees under service rules, revised to ₹25 lakh effective January 2024. It's not a tax exemption limit, and it doesn't apply to private-sector employees. Government employees' gratuity is fully tax-exempt with no ceiling regardless of this figure.
No — the ₹20 lakh gratuity exemption applies the same way under both the old and new tax regimes. It's not one of the deductions that the new regime strips out.
The amount exceeding ₹20 lakh (cumulative, across your career) is added to your taxable salary income in the year you receive it, and taxed at your applicable slab rate — see the Old vs New Tax Regime Calculator to work out what that means for you.
No — gratuity paid on death or disablement is fully exempt with no ceiling at all, regardless of the ₹20 lakh limit. See gratuity before 5 years: death or disability.
Last verified: 14 Aug 2026
Sources: incometaxindia.gov.in (S.O. 1420(E), dated 29 Mar 2018; S.O. 1213(E), dated 8 Mar 2019 — ₹20 lakh exemption limit, confirmed unchanged by the Code on Social Security, 2020).
This is indicative information, not a substitute for professional advice. Confirm your exact exemption and taxable amount with a qualified tax professional before filing or making financial decisions.