The Tax-Free Gratuity Ceiling Doubled, Retroactively

Gratuity received by an employee is tax-exempt up to a statutory ceiling under Section 10(10). For years that ceiling was ₹10 lakh. The Payment of Gratuity (Amendment) Act, 2018 raised it to ₹20 lakh - and the CBDT notification confirming the tax-exemption ceiling for this purpose wasn’t issued until 8 March 2019, nearly a year after the change actually took effect.

The Higher Ceiling Reached Back to March 2018

The notification didn’t apply the new ₹20 lakh limit only from its own issue date forward. It applied retroactively to any gratuity event - retirement, resignation, or death - occurring on or after 29 March 2018, the date the amendment itself came into force. An employee who left a job, or an estate that received a deceased employee’s gratuity, anywhere in that roughly year-long gap between March 2018 and March 2019, is entitled to the ₹20 lakh exemption, not the ₹10 lakh figure that was technically still the notified limit at the time the payment was actually made.

Effect Date and Notification Date Routinely Diverge

This kind of gap - a substantive change taking legal effect on one date, with the formal notification needed to apply it arriving considerably later - is common enough in Indian tax administration that it’s worth checking specifically rather than assuming the ceiling in force matches whatever was notified as of the payment date. An employee or estate that accepted tax withheld on gratuity above ₹10 lakh, for a payment made in that window, may have been taxed against a limit that had already been superseded.

The practical takeaway is narrow but concrete: anyone who received a large gratuity payment in 2018 or early 2019 and was taxed on the excess over ₹10 lakh has grounds to check whether the ₹20 lakh ceiling, applied retroactively, should have covered more of that payment than it was actually allowed to at the time.

Check any large gratuity paid between March 2018 and March 2019 against the Rs 20 lakh ceiling. Tax withheld on the excess over Rs 10 lakh in that window was applied against a limit that had already been superseded.