Gratuity received by an employee on his retirement is taxable under the head-salary and gratuity received by the legal heir is taxable under the head- Income from Other Sources. Exemption under section 10(10) depends upon the type of employment..Gratuity payable to government employees is fully exempt.For non government employee covered under Payment Of Gratuity Act,1972, the maximum limit for exemption is Rs 20 lakhs and for any other employees, the maximum limit of exemption is Rs 10 Lakhs.