Section 10(10)

Section 10(10) — the law in short

What the courts have decided on section 10(10), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• 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 High CourtHelps departmentNo later treatment found
  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.
• K. Gopalakrishnan v Central Board of Direct Taxes High CourtHelps departmentNo later treatment found
  For the s.10(10) gratuity and s.10(10AA) leave encashment limits, can I compute 'salary' on the pay my employer actually used — basic plus all the allowances that went into provident fund pay?
  No. The Explanation to s.10(10) fixes 'salary' for both s.10(10) and s.10(10AA) as the meaning in clause (h) of rule 2 of Part A of the Fourth Schedule — basic pay plus dearness allowance if the terms of employment so provide, and nothing else. The Madras High Court held there is no ambiguity in that definition and it must be applied; it also upheld the differential treatment of government and non-government employees in both clauses against Article 14.
• Suresh Pal Chauhan v ITO ITATHelps taxpayer
  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?
  On these facts yes. Where the Central Government approves a scheme for extending special protection to workmen of an undertaking being closed down, the second proviso to s.10(10B) displaces the monetary ceiling and the whole of the compensation is exempt. The Chandigarh Bench held the HMT Tractor Division package fell under s.10(10B) and not s.10(10C), and separately directed that s.89 relief be allowed on the net gratuity.
• Statutory position — s.17(3): what "profits in lieu of salary" includes, the exemption receipts it carves out, and the limb that catches money paid before employment begins or after it ends CBDT Circulars & InstructionsCuts both ways
  My client received a payment from a former employer that is not gratuity, not retrenchment compensation and not under any VRS. The Assessing Officer says it is profits in lieu of salary. What exactly does s.17(3) cover, and what does it not?
  Section 17(3) has three limbs. Clause (i) covers the amount of any compensation due to or received from an employer or former employer at or in connection with the termination of employment or the modification of its terms and conditions. Clause (ii) covers any payment due to or received from an employer, a former employer or a provident or other fund, but expressly excludes any payment referred to in clause (10), (10A), (10B), (11), (12), (13) or (13A) of section 10, and excludes so much of the payment as consists of the employee's own contributions or interest on them or any sum received under a Keyman insurance policy including bonus allocated on it. Clause (iii) covers any amount due to or received, whether in lump sum or otherwise, by any assessee from any person before his joining any employment with that person or after cessation of his employment with that person.
• Statutory position — s.10(10AA): the four-limb leave encashment computation, the thirty-days-a-year cap in the Explanation, and the Rs. 25,00,000 limit notified by S.O. 2276(E) from 1 April 2023 CBDT Circulars & InstructionsCuts both ways
  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?
  The current limit for a non-government employee is Rs. 25,00,000, specified by Notification No. 31/2023, S.O. 2276(E), which is deemed to have come into force with effect from 1 April 2023, in relation to employees mentioned in s.10(10AA)(ii) who retire, whether on superannuation or otherwise. The exempt amount is the least of four figures — the amount actually received; the cash equivalent of the earned leave at credit, the entitlement to earned leave being capped by the Explanation at thirty days for every year of actual service rendered to the employer from whose service he has retired; ten months' average salary computed on the average salary drawn during the ten months immediately preceding retirement; and the notified limit — and the notified limit is an aggregate across employers in the same year and across earlier years.
• Statutory position — s.10(10): the three limbs of the gratuity exemption, the twenty-lakh ceiling set by S.O. 1213(E), and why the ceiling is an aggregate across employers and across years CBDT Circulars & InstructionsCuts both ways
  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?
  The Assessing Officer is right on both points. Section 10(10) has three separate limbs and only the third carries a Central Government ceiling; that ceiling is twenty lakh rupees, specified by CBDT notification S.O. 1213(E) dated 8 March 2019 in relation to employees who retire, become incapacitated prior to retirement or die on or after 29 March 2018, or whose employment is terminated on or after that date. The first proviso to the clause caps the aggregate exemption where gratuities are received from more than one employer in the same previous year, and the second proviso reduces the ceiling by whatever was left out of total income under the clause in any earlier previous year — so the twenty lakhs is a once-in-a-lifetime cumulative allowance, not a per-employer or per-year one.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.