My client retired from a public sector undertaking a few weeks before 29 March 2018 and was paid twenty lakhs of gratuity, but tax was deducted on ten lakhs of it. Central Government employees had already been given the twenty-lakh ceiling from 1 January 2016. Can I get the higher exemption on Article 14 grounds?
No. The Madras High Court dismissed exactly that writ petition. The increased ceiling in section 4(3) of the Payment of Gratuity Act came into force on 29 March 2018 and CBDT notification S.O. 1213(E) applies the twenty-lakh income-tax limit only to employees who retire, become incapacitated or die on or after that date or whose employment is terminated on or after it; the Court held it could not push either instrument back to 1 January 2016, that employees of the Central Government and of public sector undertakings are not a single homogeneous class, and that an exemption provision must be construed strictly with ambiguity resolved in favour of the Revenue.
Decided by the High Court (Chief Justice A.P. Sahi and Senthilkumar Ramamoorthy J) on 2020-12-01, reported as W.P. No. 33725 of 2019 and W.M.P. No. 34198 of 2019 (Madras High Court). It bears on section 10(10), section 10(10)(ii), section 10(10)(iii) of the Income Tax Act 1961, in Salary & Perquisites and Capital Gains Exemptions matters.
This is the Revenue-side authority on the gratuity ceiling and the answer to the commonest grievance a practitioner will hear from a 2017-18 or early 2018-19 retiree. Three things in it are worth carrying. First, the Court separated the two instruments cleanly: for an employee covered by the Payment of Gratuity Act the income-tax exemption under s.10(10)(ii) is measured by section 4(3) of that Act, so the operative amendment is the labour-law one, and s.10(10)(iii) with its CBDT notification is a different limb. Second, the D.S. Nakara argument — that all retirees are one homogeneous class and a cut-off date discriminates — was rejected on the specific ground that Nakara concerned a pension cut-off while this concerned the date of entry into force of an amending Act of Parliament, and on the further ground that terms of employment vary significantly between Central Government employees and public sector undertakings and even between different undertakings. Third, the Court applied the Constitution Bench in Commissioner of Customs v Dilip Kumar to the exemption limit itself, holding that ambiguity in an exemption provision or notification goes in favour of the Revenue. Note the limit of the decision: the petitioner did not challenge s.10(10) or the notification as such, and the Court recorded at paragraph 13 that in the absence of such a challenge the relief could not be granted, going on to deal with the constitutional argument only because it had been argued at length. A later petitioner who does frame a challenge to the notification is not answered by paragraph 13, though he is answered by paragraphs 14 to 17.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioner was an engineer in the executive cadre of the National Thermal Power Corporation who retired on 28 February 2018 after about 33 years of service. His gratuity was paid in two tranches of Rs. 10 lakhs each, tax being deducted on the second tranche, so that he received Rs. 16.7 lakhs instead of Rs. 20 lakhs; Form 16 was issued in June 2019. The ceiling in section 4(3) of the Payment of Gratuity Act 1972 had been raised from Rs. 3,50,000 to Rs. 10 lakhs by the Payment of Gratuity (Amendment) Act 2010 with effect from 24 May 2010, and stood at Rs. 10 lakhs on the date of his retirement. The Payment of Gratuity (Amendment) Act 2018 (12 of 2018) was brought into force on 29 March 2018 by notification S.O. 1419(E), and by S.O. 1420(E) of the same date the Central Government specified twenty lakh rupees as the maximum gratuity payable under section 4(3). By notification S.O. 1213(E) dated 8 March 2019 the Central Board of Direct Taxes specified twenty lakh rupees as the income-tax limit in relation to employees who retire or become incapacitated prior to such retirement or die on or after 29 March 2018 or whose employment is terminated on or after that date. The petitioner, appearing in person, sought a writ of declaration that the words "29th day of March 2018" in both notifications should be read as "1st day of January 2016", the date from which the twenty-lakh ceiling had been given to Central Government employees following the Seventh Central Pay Commission, together with a refund of the tax deducted for financial year 2018-19. He did not challenge section 10(10) of the Income-tax Act itself.
The writ petition was dismissed with no order as to costs. The increased ceiling under the Payment of Gratuity Act entered into force on 29 March 2018 and the increased income-tax exemption limit applies only to those who retire or die on or after that date; while Parliament can legislate retrospectively, the intention to do so must be expressly stipulated, and it was not (para 13). In the absence of any challenge to section 10(10) or to notification S.O. 1213(E), the relief sought could not be granted (para 13). On the constitutional argument, employees of the Central Government and of public sector undertakings do not constitute a single homogeneous class, so the contention that they must be treated alike as regards gratuity was rejected (para 14). An exemption provision or exemption notification must be construed strictly and ambiguity as to applicability resolved in favour of the Revenue, following the Constitution Bench in Commissioner of Customs v Dilip Kumar (paras 15 and 16). D.S. Nakara did not assist the petitioner because it dealt with a cut-off date for the payment of pension whereas this case concerned the date of entry into force of an amendment to the Payment of Gratuity Act (para 17).
The Court began from the structure of section 10(10): clause (ii) exempts gratuity received under the Payment of Gratuity Act to the extent of the amount calculated under sub-sections (2) and (3) of section 4 of that Act, so the exemption limit has to be found in the labour statute and not in the Income-tax Act (paras 12 and 13). Sub-section (2) governs computation, which was not in dispute; sub-section (3) fixes the ceiling, which had been revised from time to time and stood at Rs. 10 lakhs when the petitioner retired (para 13). Having set out S.O. 1419(E), S.O. 1420(E) and S.O. 1213(E) in full, the Court held that all three fixed 29 March 2018 in express terms, that a retrospective operation from 1 January 2016 would have had to be expressly stipulated, and that the petitioner had not challenged either the section or the notification (para 13). It nonetheless examined the constitutional contention because it had been argued at length, and rejected it on the footing that as between recipients of gratuity under the Payment of Gratuity Act there was no discrimination by reference to the date of entry into force, and that the terms and conditions of employment vary significantly as between Central Government employees and those of public sector undertakings and even as between different undertakings (para 14). It then applied the strict-construction rule for exemptions from Commissioner of Customs v Dilip Kumar, quoting paragraphs 53 and 66.2 of that decision, and held that where there was no ambiguity at all in clause (ii) as it stood on the date of retirement or in S.O. 1213(E), the applicable limit could not be raised by an order of Court (paras 15 and 16). D.S. Nakara was distinguished as a pension cut-off case (para 17).
Therefore, these classes of employees do not constitute a single homogeneous class.
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Handle my notice → Ask a CA on WhatsAppNo. The Madras High Court dismissed exactly that writ petition. The increased ceiling in section 4(3) of the Payment of Gratuity Act came into force on 29 March 2018 and CBDT notification S.O. 1213(E) applies the twenty-lakh income-tax limit only to employees who retire, become incapacitated or die on or after that date or whose employment is terminated on or after it; the Court held it could not push either instrument back to 1 January 2016, that employees of the Central Government and of public sector undertakings are not a single homogeneous class, and that an exemption provision must be construed strictly with ambiguity resolved in favour of the Revenue. This was decided by the High Court (Chief Justice A.P. Sahi and Senthilkumar Ramamoorthy J) and bears on section 10(10), section 10(10)(ii), section 10(10)(iii) of the Income Tax Act 1961. It is reported as W.P. No. 33725 of 2019 and W.M.P. No. 34198 of 2019 (Madras High Court). This is the Revenue-side authority on the gratuity ceiling and the answer to the commonest grievance a practitioner will hear from a 2017-18 or early 2018-19 retiree. Three things in it are worth carrying. First, the Court separated the two instruments cleanly: for an employee covered by the Payment of Gratuity Act the income-tax exemption under s.10(10)(ii) is measured by section 4(3) of that Act, so the operative amendment is the labour-law one, and s.10(10)(iii) with its CBDT notification is a different limb. Second, the D.S. Nakara argument — that all retirees are one homogeneous class and a cut-off date discriminates — was rejected on the specific ground that Nakara concerned a pension cut-off while this concerned the date of entry into force of an amending Act of Parliament, and on the further ground that terms of employment vary significantly between Central Government employees and public sector undertakings and even between different undertakings. Third, the Court applied the Constitution Bench in Commissioner of Customs v Dilip Kumar to the exemption limit itself, holding that ambiguity in an exemption provision or notification goes in favour of the Revenue. Note the limit of the decision: the petitioner did not challenge s.10(10) or the notification as such, and the Court recorded at paragraph 13 that in the absence of such a challenge the relief could not be granted, going on to deal with the constitutional argument only because it had been argued at length. A later petitioner who does frame a challenge to the notification is not answered by paragraph 13, though he is answered by paragraphs 14 to 17. If it applies to you, the first step is this: Fix the client's date of retirement, incapacity, death or termination first. That date, and not the date of payment or the date of the Form 16, decides which ceiling applies.
The petitioner was an engineer in the executive cadre of the National Thermal Power Corporation who retired on 28 February 2018 after about 33 years of service. His gratuity was paid in two tranches of Rs. 10 lakhs each, tax being deducted on the second tranche, so that he received Rs. 16.7 lakhs instead of Rs. 20 lakhs; Form 16 was issued in June 2019. The ceiling in section 4(3) of the Payment of Gratuity Act 1972 had been raised from Rs. 3,50,000 to Rs. 10 lakhs by the Payment of Gratuity (Amendment) Act 2010 with effect from 24 May 2010, and stood at Rs. 10 lakhs on the date of his retirement. The Payment of Gratuity (Amendment) Act 2018 (12 of 2018) was brought into force on 29 March 2018 by notification S.O. 1419(E), and by S.O. 1420(E) of the same date the Central Government specified twenty lakh rupees as the maximum gratuity payable under section 4(3). By notification S.O. 1213(E) dated 8 March 2019 the Central Board of Direct Taxes specified twenty lakh rupees as the income-tax limit in relation to employees who retire or become incapacitated prior to such retirement or die on or after 29 March 2018 or whose employment is terminated on or after that date. The petitioner, appearing in person, sought a writ of declaration that the words "29th day of March 2018" in both notifications should be read as "1st day of January 2016", the date from which the twenty-lakh ceiling had been given to Central Government employees following the Seventh Central Pay Commission, together with a refund of the tax deducted for financial year 2018-19. He did not challenge section 10(10) of the Income-tax Act itself. The matter was decided on 2020-12-01 by the High Court (Chief Justice A.P. Sahi and Senthilkumar Ramamoorthy J). On those facts the High Court held as follows. The writ petition was dismissed with no order as to costs. The increased ceiling under the Payment of Gratuity Act entered into force on 29 March 2018 and the increased income-tax exemption limit applies only to those who retire or die on or after that date; while Parliament can legislate retrospectively, the intention to do so must be expressly stipulated, and it was not (para 13). In the absence of any challenge to section 10(10) or to notification S.O. 1213(E), the relief sought could not be granted (para 13). On the constitutional argument, employees of the Central Government and of public sector undertakings do not constitute a single homogeneous class, so the contention that they must be treated alike as regards gratuity was rejected (para 14). An exemption provision or exemption notification must be construed strictly and ambiguity as to applicability resolved in favour of the Revenue, following the Constitution Bench in Commissioner of Customs v Dilip Kumar (paras 15 and 16). D.S. Nakara did not assist the petitioner because it dealt with a cut-off date for the payment of pension whereas this case concerned the date of entry into force of an amendment to the Payment of Gratuity Act (para 17).
The Court began from the structure of section 10(10): clause (ii) exempts gratuity received under the Payment of Gratuity Act to the extent of the amount calculated under sub-sections (2) and (3) of section 4 of that Act, so the exemption limit has to be found in the labour statute and not in the Income-tax Act (paras 12 and 13). Sub-section (2) governs computation, which was not in dispute; sub-section (3) fixes the ceiling, which had been revised from time to time and stood at Rs. 10 lakhs when the petitioner retired (para 13). Having set out S.O. 1419(E), S.O. 1420(E) and S.O. 1213(E) in full, the Court held that all three fixed 29 March 2018 in express terms, that a retrospective operation from 1 January 2016 would have had to be expressly stipulated, and that the petitioner had not challenged either the section or the notification (para 13). It nonetheless examined the constitutional contention because it had been argued at length, and rejected it on the footing that as between recipients of gratuity under the Payment of Gratuity Act there was no discrimination by reference to the date of entry into force, and that the terms and conditions of employment vary significantly as between Central Government employees and those of public sector undertakings and even as between different undertakings (para 14). It then applied the strict-construction rule for exemptions from Commissioner of Customs v Dilip Kumar, quoting paragraphs 53 and 66.2 of that decision, and held that where there was no ambiguity at all in clause (ii) as it stood on the date of retirement or in S.O. 1213(E), the applicable limit could not be raised by an order of Court (paras 15 and 16). D.S. Nakara was distinguished as a pension cut-off case (para 17). In the words reproduced by the source cited on this page: "Therefore, these classes of employees do not constitute a single homogeneous class." The decision followed or applied Commissioner of Customs v. Dilip Kumar (2018) 9 SCC 1 (SC, Constitution Bench) — applied; paras 53 and 66.2 quoted; D.S. Nakara v. Union of India (1983) 1 SCC 305 (SC, Constitution Bench) — distinguished; Tvl. Afcons-Transtonnelstroy Joint Venture v. Union of India, 2020 SCC Online Mad 2570 — cited by the Revenue.
It was decided by the High Court on 2020-12-01 and is reported as W.P. No. 33725 of 2019 and W.M.P. No. 34198 of 2019 (Madras High Court). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 10(10), section 10(10)(ii), section 10(10)(iii), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The writ petition was dismissed with no order as to costs. The increased ceiling under the Payment of Gratuity Act entered into force on 29 March 2018 and the increased income-tax exemption limit applies only to those who retire or die on or after that date; while Parliament can legislate retrospectively, the intention to do so must be expressly stipulated, and it was not (para 13). In the absence of any challenge to section 10(10) or to notification S.O. 1213(E), the relief sought could not be granted (para 13). On the constitutional argument, employees of the Central Government and of public sector undertakings do not constitute a single homogeneous class, so the contention that they must be treated alike as regards gratuity was rejected (para 14). An exemption provision or exemption notification must be construed strictly and ambiguity as to applicability resolved in favour of the Revenue, following the Constitution Bench in Commissioner of Customs v Dilip Kumar (paras 15 and 16). D.S. Nakara did not assist the petitioner because it dealt with a cut-off date for the payment of pension whereas this case concerned the date of entry into force of an amendment to the Payment of Gratuity Act (para 17). It arises in Salary & Perquisites and Capital Gains Exemptions matters, on section 10(10), section 10(10)(ii), section 10(10)(iii) of the Income Tax Act 1961, and was decided by Chief Justice A.P. Sahi and Senthilkumar Ramamoorthy J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If the client is covered by the Payment of Gratuity Act, argue under s.10(10)(ii) and take the ceiling from section 4(3) of that Act as it stood on that date — Rs. 10 lakhs from 24 May 2010 and Rs. 20 lakhs only from 29 March 2018. Do not run the D.S. Nakara parity argument on these facts without dealing with paragraphs 14 and 17 of this judgment, which distinguish Nakara and reject the homogeneous-class contention for PSU employees. Expect Dilip Kumar to be put against any construction of the notification that would extend it backwards; if you have a genuine ambiguity argument, be ready to say why it is not an ambiguity in an exemption provision. If the client's real grievance is against the appointed date in the notification, note that this petitioner did not challenge the notification and the Court said so; a challenge would have to be framed and would face paragraphs 14 to 17.
Searched for later treatment; none was found. That is not the same as a source affirming it. Nothing found on two probes. The citedby search returns no results and indiankanoon's own figure for the judgment is 'Cited by 0'; a second probe pairing the case name with gratuity, section 10(10) and the twenty-lakh ceiling returned only the judgment itself. A data point worth correcting in the library: indiankanoon dates this judgment 29 March 2018, not 1 December 2020, and the doc id in the entry resolves to that 2018 page. So the holding - that the enhanced twenty-lakh exemption under section 10(10) is keyed to the date of retirement and a public sector retiree who left before 29 March 2018 cannot claim it - has not been applied, doubted or overruled by any later decision on record. It runs with the Supreme Court's reasoning in Krishna Gopal Tiwary on the prospective operation of the 2018 gratuity amendment, so a practitioner should not expect the contrary argument to succeed, but this judgment itself carries no citator support. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
A date conflict worth recording. Some listings give this order as decided on 29 March 2018. That is the appointed date discussed in the order, not the date of the order. The document's own header gives W.P. No. 33725 of 2019 and W.M.P. No. 34198 of 2019, the order is dated 01.12.2020 and signed "(A.P.S., CJ.) (S.K.R., J.)", a writ petition of 2019 cannot have been decided in 2018, and the order discusses a notification of 8 March 2019. The date taken here is 1 December 2020. The order runs from paragraph 1 to paragraph 18, which contains the disposal, and no paragraph beyond that is cited. What the order itself does not resolve: paragraph 3 says that by S.O. 1213(E) "Section 10(10)(iii) of the Income Tax Act was amended", while the petitioner's own case was under s.10(10)(ii). The notification is in fact issued under sub-clause (iii), and the Court's substantive reasoning at paragraphs 13 and 16 proceeds under sub-clause (ii); this entry follows the Court's reasoning rather than the loose description in paragraph 3. The Court's reproduction of s.10(10)(ii) at paragraph 12 reads "any other gratuity received under the Payment of Gratuity Act, 1972", whereas the statutory text of the clause reads "any gratuity received under the Payment of Gratuity Act, 1972"; the word "other" appears to be an error in the reproduction and the Court's version has not been used as the statutory text. The Court's reproduction of S.O. 1213(E) gives the superseded notification as "S.O.141(E), dated the 11th June, 2010"; that notification has not been read and nothing is said here about its number. Two limits on how far the decision goes. The Court decided the case that was argued, and paragraph 13 records that neither s.10(10) nor the notification was itself challenged; a petitioner who does frame such a challenge meets paragraphs 14 to 17 but not paragraph 13. And the reasoning is keyed to the date of retirement, so it says nothing about an employee whose gratuity became payable on or after 29 March 2018 on some other event, nor about an employee outside the Payment of Gratuity Act whose exemption runs under s.10(10)(iii) and its own notified ceiling. Whether this judgment has been appealed, followed or doubted has not been checked; the validity note records what was and was not looked for, and a practitioner relying on the decision for a client of his own should satisfy himself on that before the hearing. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The writ petition was dismissed with no order as to costs. The increased ceiling under the Payment of Gratuity Act entered into force on 29 March 2018 and the increased income-tax exemption limit applies only to those who retire or die on or after that date; while Parliament can legislate retrospectively, the intention to do so must be expressly stipulated, and it was not (para 13). In the absence of any challenge to section 10(10) or to notification S.O. 1213(E), the relief sought could not be granted (para 13). On the constitutional argument, employees of the Central Government and of public sector undertakings do not constitute a single homogeneous class, so the contention that they must be treated alike as regards gratuity was rejected (para 14). An exemption provision or exemption notification must be construed strictly and ambiguity as to applicability resolved in favour of the Revenue, following the Constitution Bench in Commissioner of Customs v Dilip Kumar (paras 15 and 16). D.S. Nakara did not assist the petitioner because it dealt with a cut-off date for the payment of pension whereas this case concerned the date of entry into force of an amendment to the Payment of Gratuity Act (para 17).
TaxSphere, “G. Srinivasan v Union of India — the twenty-lakh gratuity ceiling applies by date of retirement, and a PSU retiree who left before 29 March 2018 cannot have it”, https://taxnotice.vittsphere.com/caselaw/case/g-srinivasan-v-uoi-gratuity-twenty-lakh-ceiling-runs-from-the-retirement-date/ (validity last checked 2026-09-09)
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My client retired last year and received gratuity from two employers in the same year. The Assessing Officer says he can only have one twenty-lakh exemption in total, and has also asked about gratuity he received when he changed jobs in 2014. Is that right, and where does the twenty-lakh figure come from?
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My client took the package when HMT's Tractor Division was closed. CPC allowed only Rs 5 lakh under s.10(10C) and then refused s.89 relief because of it. Is the whole package exempt?
My client is a private-sector retiree who was paid leave encashment. The Assessing Officer has restricted the exemption to three lakhs. What is the current limit, what instrument set it, and how is the exempt amount actually computed?
