How much gratuity is tax-free for employees?

For employees covered under Payment of Gratuity Act, the tax exemption is the lowest of the actual gratuity received, ₹20 lakh or the amount calculated based on salary and years of service. For example, an employee earning ₹1 lakh monthly with 20 years of service would get an exemption of about ₹11.54 lakh. Excess amount is taxed as salary income.