Gratuity Calculator
Calculate your gratuity payout under the Payment of Gratuity Act, 1972. Compare statutory formulas for covered vs uncovered establishments with exact tax-exempt (up to ₹20 Lakh) and taxable divisions.
Gratuity up to ₹20,00,000 is 100% tax-free under Section 10(10) of the Income Tax Act. Any excess is taxed at normal slab rates.
What is gratuity?
Gratuity is a one-time payment from employer to employee, paid on retirement, resignation after five or more years, death, or permanent disability. It is calculated from your last drawn Basic + Dearness Allowance and your years of continuous service — not your full gross salary or CTC.
The Payment of Gratuity Act, 1972 mandates gratuity for employers with 10 or more employees (called "covered" organisations). Smaller employers may pay it voluntarily. The two categories use different formulas and different rules on how part-years are counted.
Gratuity Formula
Two formulas apply depending on whether your employer is covered under the Payment of Gratuity Act, 1972.
Worked Example — ₹75,000 Basic + DA, 12 years 8 months
Tax Treatment
Under Section 10(10) of the Income Tax Act, gratuity received from a private-sector employer is tax-exempt up to ₹20,00,000.00 in a lifetime (not per employer). The exempt ceiling was last revised in 2018 from ₹10,00,000.00 to ₹20,00,000.00. Any amount above the ceiling is taxable as salary income in the year of receipt.
Government employees have an unlimited exemption — the entire gratuity amount is tax-free regardless of size.
Common Mistakes to Avoid
- Only Basic + Dearness Allowance counts — not gross salary. HRA, special allowance, bonuses, and other pay components do not enter the formula. If you enter your full gross salary, you will overstate the gratuity amount.
- Rounding up a part-year applies only to covered organisations. For employers covered under the Act (10+ employees), a part-year of more than 6 months counts as a full year. For uncovered employers, only completed years count — so 12 years 8 months is treated as 12 years, not 13.
- The ₹20 lakh tax-exempt ceiling is a tax rule, not a payment cap. Your employer owes the full statutory gratuity even if it exceeds ₹20 lakh — but only the first ₹20 lakh is tax-exempt. The excess is added to your taxable salary income.
- Five years of service is required for covered employers — not for all. The 5-year minimum applies to organisations covered under the Payment of Gratuity Act. Uncovered employers may pay gratuity voluntarily from any tenure under their own policy.
References
- Payment of Gratuity Act, 1972 (as amended in 2018)
- Central Board of Direct Taxes (CBDT) — Section 10(10) tax-exempt ceiling
Last reviewed July 2026