Payment of Gratuity Act 1972 · s.10(10) · ₹20 lakh exemption

Gratuity — amount and tax

Five years of service earns you a lump sum when you leave. The formula is fixed by law; the tax exemption is generous. Enter your last salary and tenure.

The rules this tool applies

• Eligibility: 5 years of continuous service (waived on death or disablement).
• Formula (covered employers): 15 ÷ 26 × last drawn basic + DA × years of service; a part-year of six months or more counts as a full year.
• Non-covered employers: half a month's average salary (last 10 months) for each completed year — no rounding up.
• Statutory ceiling: ₹20 lakh under the Act; employers may pay more voluntarily.
• Tax (s.10(10)): exempt up to the least of actual gratuity, the formula amount and ₹20 lakh (lifetime, across employers) for non-government employees; government employees — fully exempt. Anything above is taxed as salary.

Worked example

Last basic + DA ₹60,000, 12 years 7 months: rounds to 13 years; gratuity = 15/26 × 60,000 × 13 = ₹4,50,000 — fully tax-free. At ₹1,50,000 salary and 25 years the formula gives ₹21,63,462: ₹20 lakh exempt, ₹1,63,462 added to salary income.

Edge cases to know

• The ₹20 lakh limit is lifetime — exemptions claimed from earlier employers reduce it.
• Resigning at 4 years 8 months? Courts have accepted 4 years + 240 days as five years for eligibility, but it is contested — confirm with HR before relying on it.
• Freelancers have no gratuity — the self-funded equivalent is PPF.

Related tools

• Leave encashment calculator — the other exit payment.
• EPF calculator.

Last verified: 18 September 2026 — formula per the Payment of Gratuity Act; ₹20 lakh exemption for non-government employees confirmed across three sources · Not tax advice.