How to Show Gratuity Amount in ITR?

Receiving a lump sum like gratuity is a major financial milestone, but the task of reporting it in your Income Tax Return (ITR) can feel like a daunting paperwork hurdle. As of March 2026, the digital integration between employers and the Income Tax Department has improved, but the responsibility for accurate disclosure still rests on your shoulders.

Correct reporting of gratuity is essential for two reasons: it ensures you don't pay unnecessary tax on exempt income, and it prevents the tax department from sending you a "mismatch" notice. In the 2025-26 assessment year, gratuity remains a high-value item that tax AI bots monitor closely.

1. Before You Start: Gather Your Documents

You cannot file your ITR accurately without these three documents:

• Form 16 (Part B): Your employer will usually pre-fill the exempt and taxable portions of your gratuity here.
• Gratuity Statement: A document from your HR detailing the years of service and the formula used.
• AIS (Annual Information Statement): Check your AIS on the tax portal to ensure the gratuity amount reported by your employer matches what you are about to file.

2. Reporting Gratuity in ITR-1 or ITR-2

For most salaried individuals, ITR-1 (Sahaj) or ITR-2 is used. The process of showing gratuity is divided into two parts: the Gross Amount and the Exempt Portion.

Step 1: The Salary Schedule
In the "Income from Salary" section, you will find a field for "Gross Salary." * You must report the Total Gratuity Received (Taxable + Exempt) as part of your gross salary here.

• If your employer has already deducted the exempt portion in Form 16, this might appear pre-filled. Always cross-verify.
  
  

Step 2: Claiming the Exemption (Section 10(10))
Immediately below the gross salary section, there is a dropdown menu for "Less: Allowances to the extent exempt under section 10."

• Select Section 10(10) from the list.
• Enter the Exempt Amount (up to ₹20 Lakhs for private employees or the full amount for government employees).
• The portal will automatically subtract this from your gross salary, leaving only the taxable portion to be added to your total income.

3. Disclosing Exempt Income (Schedule EI)

Even though the money is tax-free, the government requires you to report it for "information purposes."

• Navigate to Schedule EI (Exempt Income).
• Enter the exempt gratuity amount under the relevant field (usually categorized as "Others" or specifically labeled as "Exemptions under Section 10").
• This disclosure confirms to the tax department that you received a large sum of money, but it is legally non-taxable.

4. The 2026 "Form 10E" Requirement (Section 89 Relief)

If your taxable gratuity (anything above the ₹20 Lakh limit) pushes you into a higher tax bracket (e.g., from 15% to 30%), you can claim Section 89(1) Relief.

• What it does: It treats the gratuity as if it were received over the years you actually worked, potentially lowering your tax rate.
• The Rule: To claim this, you MUST file Form 10E online before you submit your ITR.
• In the ITR: Once Form 10E is filed, enter the relief amount in the "Tax Relief" section of your ITR. If you claim the relief without filing Form 10E, you will receive a tax notice.

5. Summary: ITR Filing Checklist for Gratuity

6. Conclusion: Transparency is Your Shield

Reporting gratuity is not just about math; it’s about transparency. In 2026, the Income Tax Department's systems are highly sophisticated. By correctly identifying your exempt portion under Section 10(10) and disclosing the rest, you protect your retirement savings from being eroded by penalties.

At Aditya Birla Sun Life Insurance, we recommend that you don't wait until the last week of July to file. If you have received a gratuity payout, start your Form 10E early and ensure your AIS is updated. A clean ITR filing is the final step in ensuring your "Loyalty Bonus" provides the peace of mind you’ve earned.