New Delhi, Oct. 22 -- Employees leaving their jobs after several years of service may receive gratuity as part of their final settlement. While gratuity is a retirement benefit paid by employers in recognition of an employee's service, the entire amount received may not necessarily be exempt from income tax.

Under the income tax rules, the exemption depends on factors such as the employee's category, years of service, last drawn salary and the amount of gratuity received. For most eligible private-sector employees, the maximum tax-free limit is Rs.20 lakh. However, receiving less than Rs.20 lakh does not automatically mean the entire payout will be tax-free.

According to CA Chandni Anandan, Tax Expert at ClearTax, gratuity received upon...