Given below are two statements.
Statement I): Gratuity received by Government employee is exempted from tax under Section 10(10)(i) of the Indian Income Tax Act, 1961.
Statement (II) : Gratuity received by local authority employee is exempted from tax.
In the light of the above statements, choose the correct answer from the options given below :

Correct option is A

Under Section 10(10)(i) of the Indian Income Tax Act, 1961, gratuity received by Government employees (including Central and State Government employees) is fully exempt from tax.
Additionally, gratuity received by employees of a local authority is also fully exempt from tax under the same provision. Local authority employees are considered government employees for tax exemption purposes.
Information Booster:
1. Section 10(10) of the Income Tax Act, 1961 deals with the taxability of gratuity.
2. Government employees (Central or State) and employees of local authorities receive a full tax exemption on gratuity.
3. For private sector employees, the tax exemption is subject to a limit as per Section 10(10)(ii) and 10(10)(iii).
4. The exemption limit for non-government employees is whichever is lower of:
· ₹20 lakh (as per latest amendment).
· Gratuity actually received.
· 15 days' salary for each completed year of service.
5. Gratuity is calculated using the formula:
· (Last drawn salary × 15/26) × Number of completed years of service.
6. Death-cum-retirement gratuity received by employees under government pension schemes is also exempt.