๐ Enter Your Details
Monthly Salary (Basic + DA) โน50,000/mo
โน
Your basic monthly pay plus dearness allowance (DA). Exclude HRA, bonuses and other allowances.
Completed Years of Service 15 years
๐ค
The number of completed years you worked. (Establishments covered under the Gratuity Act round up service over 6 months to the next year).
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Enter your details and click Calculate to see your gratuity payout & tax exemption breakdown.
The Formulas
How is Gratuity Tax Exemption Calculated?
Section 10(10) Rules
The tax exemption on gratuity is determined by whether the employee falls under the Payment of Gratuity Act, 1972 or not. In both cases, the tax exemption is the minimum (lowest) of three rules:
Case A: Covered under the Gratuity Act
Rule 1: Actual gratuity received from employerRule 2: โน20,00,000 statutory limit (lifetime limit)
Rule 3: (15 / 26) ร Last Drawn Salary ร Service Years (where service years are rounded to the nearest integer; e.g. 15.6 years rounds to 16, salary is Basic + DA)
Case B: NOT Covered under the Gratuity Act
Rule 1: Actual gratuity received from employerRule 2: โน20,00,000 statutory limit (lifetime limit)
Rule 3: (15 / 30) ร 10-Month Average Salary ร Completed Service Years (only fully completed years of service are counted, months are ignored; salary is 10-month average Basic + DA + fixed commission)
1
Actual Payout Received
2
โน20L Lifetime Cap
3
Formula-Based Limit
Tax Rules Guide
Exemption Rules โ Government vs Private Employees
๐ก Note: Gratuity tax exemption is available under both the Old and New tax regimes without any restrictions.
1. Government Employees
Central/State government, local authority, and defense personnel enjoy complete tax immunity on gratuity:
- Tax Exemption: Entire gratuity received at retirement is 100% tax-free. There is no statutory ceiling limit.
2. Covered under the Payment of Gratuity Act, 1972
Applies to establishments with 10 or more employees (e.g. factories, mines, ports, oilfields, shops, and private companies):
- Eligibility: Continuous service of 5 years is mandatory. (Waived off if the separation is due to death or permanent disablement).
- Round-off Rule: Excess service of 6 months or more is rounded up to the next full year. E.g. 5 years and 6 months counts as 6 years; 5 years and 5 months counts as 5 years.
- Working Day Factor: Divisor of 26 represents working days in a month. Multiplier of 15 represents half-month wages.
3. NOT Covered under the Payment of Gratuity Act, 1972
Applies to organizations with fewer than 10 employees, or companies where the Act is not applicable:
- Round-off Rule: Partial years or remaining months are completely ignored. E.g. 9 years and 11 months counts as 9 completed years of service.
- Salary Average: The average monthly salary is calculated over the 10 months immediately preceding the month of retirement.
FAQs
Frequently Asked Questions
What is the eligibility criteria to receive gratuity?
Under the Payment of Gratuity Act, 1972, you must complete at least 5 years of continuous service with the same employer. However, if the termination of service is due to death or disablement, the 5-year requirement is waived, and gratuity is paid to the employee or their legal heir.
What is the statutory tax limit for gratuity?
For private sector employees, the lifetime maximum tax exemption limit on gratuity is โน20,00,000 (โน20 Lakhs). This is an aggregate limit. If you switch jobs and receive tax-exempt gratuity multiple times, the total cumulative exemption cannot exceed โน20 Lakhs over your lifetime. Any gratuity received by government sector employees is 100% tax-free.
Is gratuity taxable if received during active employment?
Yes. Gratuity is only eligible for tax exemption if received at the time of retirement, resignation, death, or disablement. If you receive gratuity from your employer during active employment, the entire amount is fully taxable under the head "Income from Salary."
Is gratuity exemption available under the New Tax Regime?
Yes, gratuity tax exemption under Section 10(10) is fully allowed under the New Tax Regime. It is one of the few retirement exemptions (along with leave encashment and NPS partial withdrawals) that have been retained in the New Tax Regime.