Tax on Retirement Benefits in India 2026
Gratuity, EPF, pension commutation, leave encashment, and VRS — all have different tax treatments. This guide has the complete, accurate picture. Know exactly what you'll take home and how to minimize your tax liability using available exemptions.
Complete Retirement Benefits Tax Table (FY 2026)
| Benefit | Exempt Up To | Taxable | Section |
|---|---|---|---|
| Gratuity (Private, Act-covered) | ₹20 lakh (lifetime) | Amount above ₹20L | Section 10(10)(ii) |
| Gratuity (Government) | Fully exempt | Nil | Section 10(10)(i) |
| Gratuity (Death/Disability) | Fully exempt (no cap) | Nil | Section 10(10) |
| EPF (after 5 yrs service) | Fully exempt | Nil | Section 10(11) |
| EPF (before 5 yrs) | ₹50,000 (TDS threshold) | Full amount above ₹50K | Section 192A |
| Commuted Pension (Govt) | Fully exempt | Nil | Section 10(10A)(i) |
| Commuted Pension (Pvt + Gratuity) | 1/3 of commuted value | Balance 2/3 | Section 10(10A)(ii) |
| Leave Encashment at Retirement | Lower of ₹25L / 10 months avg salary | Amount above exemption | Section 10(10AA) |
| VRS Amount | ₹5 lakh | Amount above ₹5L | Section 10(10C) |
Section 89 Relief — If Retirement Spikes Your Tax
If receiving a large gratuity or commuted pension pushes you into a higher tax bracket in the year of retirement, you can claim relief under Section 89(1) of the Income Tax Act. This treats the payment as if received gradually, reducing the tax spike.
File Form 10E Before ITR
You must file Form 10E on the income tax portal (incometax.gov.in) before submitting your ITR. If you file the ITR first without Form 10E, the Section 89 relief claim will be rejected and you may receive a demand notice.Calculate Your Gratuity
Used only to verify the 50% wage floor rule under the new Labour Code.
Wages will be at least 50% of monthly CTC
Enter your CTC/Salary and service period to calculate
Generate Your Tax-Exemption Summary
Create a clean record of your gratuity and its tax-exempt portion under Section 10(10) for your ITR files and your tax consultant. Fill in the details below — your exemption is calculated as the least of actual gratuity, the ₹20 lakh ceiling, and the 15/26 formula amount.
Gratuity Tax-Exemption Summary Generator
Create a clean summary of your gratuity and its tax-exempt portion for your ITR records and for sharing with your tax consultant.
GRATUITY TAX-EXEMPTION SUMMARY Prepared on: 15 June 2026 Employee: [Your Name] Employer: [Employer Name] Last Working Day: [Date] Completed Service: [__] years -------------------------------------------------- Gratuity received : [Amount] Exempt u/s 10(10) (lower of 3) : ₹0 Statutory ceiling considered : ₹20,00,000 Taxable gratuity (if any) : ₹0 -------------------------------------------------- Note: Exemption under Section 10(10) of the Income Tax Act is the LEAST of: (a) Actual gratuity received, (b) ₹20,00,000 (statutory limit for non-government employees), and (c) 15/26 × last drawn salary × completed years of service. This summary is for personal record-keeping. Please verify figures with your tax consultant before filing your ITR. — [Your Name]
This tool assembles a template for your convenience and does not constitute legal advice. Review the wording and verify amounts before sending.
Frequently Asked Questions
Is gratuity taxable on retirement in India?
Gratuity received on retirement is tax-exempt up to ₹20 lakh for private sector employees covered under the Payment of Gratuity Act. For government employees, the entire gratuity is fully tax-free. Any amount above ₹20 lakh is taxable at your income slab rate. The ₹20 lakh is a lifetime limit across all employers — not per job.
Is EPF taxable on retirement?
EPF received on retirement is fully tax-free provided you have completed at least 5 continuous years of service (or transferred the EPF account without break). If you withdraw before 5 years, TDS at 10% applies on the amount exceeding ₹50,000, and the employer's share is added to your income for that year.
Is pension taxable in India?
Yes, most pension income is taxable. Regular monthly pension is taxed as salary income. However, commuted pension (lump sum received instead of monthly pension) has special treatment: government employees — fully exempt; private sector employees who also receive gratuity — 1/3 of commuted pension is exempt; private sector employees without gratuity — 1/2 of commuted pension is exempt.
What are all the retirement benefits and their tax treatment in India?
Here is the full summary: (1) Gratuity — tax-free up to ₹20L (private) or fully free (government). (2) EPF — tax-free after 5 years of service. (3) Leave encashment at retirement — exempt up to the lower of: 10 months average salary, leave balance × daily wage, ₹25 lakh, or actual amount received. (4) Commuted pension — 1/3 or 1/2 exempt depending on gratuity receipt. (5) VRS amount — exempt up to ₹5 lakh under Section 10(10C).
Is gratuity taxable in the hands of the nominee after death?
No. Gratuity received by the nominee/legal heir on account of the employee's death is fully tax-exempt under Section 10(10) of the Income Tax Act — there is no ₹20 lakh cap that applies. Any amount received by the family member due to death of the employee is completely tax-free.
How is section 89 relief applicable to retirement gratuity?
If your gratuity bumps you into a higher tax slab in the year of retirement, you can claim relief under Section 89(1). This relief effectively spreads the tax liability as if the gratuity was received over multiple years, reducing the effective tax rate. File Form 10E on the income tax portal before filing your ITR to claim this relief — you cannot claim it in your return if Form 10E was not filed.