Central Government Act
Section 10(10)(iii) in The Income- Tax Act, 1995
(iii) any other gratuity received by an employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment, or any gratuity received by his widow, children or dependents on his death, to the extent it does not, in either case, exceed one- half month' s salary for each year of completed service, 5[ calculated on the basis of the average salary for the ten months immediately preceding the month in which any such event occurs, subject to such limit as the Central Government may, by notification in the Official Gazette, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government]: Provided that where any gratuities referred to in this clause are received by an employee from more than one employer in the same previous year, the aggregate amount exempt from income- tax under this clause 6[ shall not exceed the limit so specified]:
Provided further that where any such gratuity or gratuities was or were received in any one or more earlier previous years also and the whole or any part of the amount of such gratuity or gratuities was not included in the total income of the assessee of such previous year or years, the amount exempt from income- tax under this clause 1[ shall not exceed the limit so specified] as reduced by the amount or, as the case may be, the aggregate amount not included in the total income of any such previous year or years: 2[ ] Explanation.- 3[ In this clause and in clause (IOAA)]," salary" shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule;]
3 All the three limits specified in the section will operate as cumulative conditions and the exempt portion of the gratuity will be restricted to any of these three limits whichever is the least. Retirement gratuity will be exempt to the extent mentioned in the latter half of the section and the remaining amount will be entitled to relief under section 89 1. In the case of gratuity funds approved for the purposes of Income- tax Act a provision authorising the payment of gratuity to an employee while he continues to remain in service should not be allowed. The latter half of the section should be regarded as covering the case of only a gratuity payment on the employee' s retirement or on his becoming incapacitated or on termination of his employment or on his death. The rules of a fund approved for the purposes of Income tax Act should not permit the payment of gratuity in the form of annuities payable over a specified number of years. In order to claim the exemption under the section it is necessary that the amount of gratuity should be calculated exactly on the basis laid down in the section.[ Letter No. 1 (1 79) 162, dated 13th December, 1962 ] 4 The expression' termination of employment used in the section as amended by Finance Act, 1972 covers the case of an employee whose services come to an end due to his resignation. 5 Limit of exemption of death- cum- retirement gratuity under section 10 (10) (iii) has been raised to Rs. 1 lakh in relation to employees who retire of become incapacitated or die on or after 1st April, 1988 or whose employment is terminated on or after that date.