💼 SECTION 10(10) · ₹20L TAX-FREE · 5 YEARS+

Gratuity Calculator per Payment of Gratuity Act 1972

Calculate gratuity payable on separation. Auto-handles Section 10(10) exemption up to ₹20 lakh tax-free (unchanged since March 2018). Supports both covered employees (Payment of Gratuity Act 1972) and non-covered employees. Includes fixed-term contract provisions per Industrial Relations Code 2020. IT Act 1961 + IT Act 2025 ready.

Gratuity Details

Employee Coverage Under Gratuity Act

Covered (Most employees) Not Covered

Covered: Establishments with 10+ employees · Not Covered: Smaller orgs, govt employees use different formula

Last Drawn Basic Salary + DA (Monthly)

₹

Last month's Basic + Dearness Allowance (NOT including HRA, allowances, bonus)

Years of Continuous Service

Round up: 6+ months = +1 year (for covered employees). Min 5 years required.

Reason for Separation 5-year minimum WAIVED for death/disability cases

Employee Category (for tax exemption)

Govt Employee Private Sector

Govt employees: Full gratuity TAX-FREE u/s 10(10)(i) · Private: ₹20L cap u/s 10(10)(ii)/(iii)

💼

Gratuity Calculator

Per Payment of Gratuity Act 1972, with Section 10(10) tax exemption.

📐 Formulas

Covered Employees:
Last Basic × 15/26 × Years

Non-Covered Employees:
Avg last 10 months Basic × 15/30 × Years

Tax Exemption:
Up to ₹20 lakh (private)
Full exempt (govt)

Gratuity Rules — Who Gets What

Eligibility

Minimum 5 years of continuous service. Waived for: death, total disability, or termination due to disablement. Counted: actual working days incl. leave, training, lay-off (in some cases).

Covered vs Not Covered

Covered (Gratuity Act 1972): Establishments with 10+ employees. Formula: Last Basic+DA × 15/26 × Years. Not Covered: Smaller orgs. Formula: Avg of last 10 months Basic × 15/30 × Years (different denominator).

Year Rounding

Covered: If 6+ months in current year → counts as +1 year (rounded up). Not covered: Only completed years counted (no rounding up). Example: 7 years 8 months = 8 years (covered) or 7 years (not covered).

Tax Exemption u/s 10(10)

Private sector: Lowest of (a) Actual gratuity received, (b) Last salary × 15 × years × 26, (c) ₹20,00,000 (limit since 29 March 2018). Amount above ₹20L is fully taxable. Govt employees: FULL amount tax-free.

IT Act 2025 Changes

Section 10(10) → Section 19 read with Schedule II (IT Act 2025). ₹20L limit retained. Substantive provision unchanged — only section number changes for FY 2026-27 onwards.

Employer's Obligation

Pay within 30 days of becoming due (last working day for retirement/resignation; date of death for death). Interest @ simple rate notified by govt if delayed. Form L is used to apply for gratuity from employer.

Strategic Considerations

Resignation Strategy: If you're at 4.5 years, complete 5 years to be eligible. Even 1 day short = ₹0 gratuity for covered employees.
Job Change at Year 4.6: You FORFEIT all gratuity. Consider negotiating with employer to convert into CTC component instead.
Multiple Employers: ₹20L cap is LIFETIME across all employers. Track cumulative gratuity received. Form 16 captures this.
CTC Component: Some employers show "gratuity provision" in CTC (4.81% of basic). This is theoretical — you only RECEIVE on actual separation after 5 years.
Death/Disability: Family receives full gratuity even before 5 years. Cap of ₹20L still applies for tax (but family gets death benefit too).

Gratuity Calculator FAQs

Why is the formula 15/26 (not 15/30)?

For employees COVERED under Gratuity Act 1972: 26 is used because Sundays are deducted from working days (assumes 30 days - 4 Sundays = 26 working days). For NOT covered employees, 30 is used (calendar month basis). This is why coverage matters significantly.

What counts as "Basic Salary" for gratuity?

Only Basic Salary + Dearness Allowance (DA). EXCLUDED: HRA, conveyance, special allowance, performance bonus, overtime, food coupons, leave encashment. Some courts have ruled certain allowances as "wages" — case law evolving. For calculation, stick to Basic + DA from Form 16.

Can my employer pay more than the calculated gratuity?

YES — many companies pay ex-gratia or additional amounts. But tax exemption u/s 10(10) is limited to: (a) Actual gratuity received OR (b) Calculated as per formula OR (c) ₹20 lakh — whichever is LOWEST. So extra amount above formula/limit is taxable.

Is gratuity taxable in New Tax Regime?

YES, the Section 10(10) exemption applies in BOTH regimes. ₹20L limit applies regardless of regime chosen. Only difference: New Regime doesn't allow other deductions, but gratuity exemption is "exclusion from income" (under Section 10, not Chapter VIA), so available in both regimes. Same continues under IT Act 2025.

What if I leave before 5 years?

For covered employees: NO gratuity. Period. Even 4 years 11 months = zero. Exceptions: death, disability, termination due to disablement (where 5-year requirement waived). Some companies offer "ex-gratia" but it's discretionary, not entitlement.

How does gratuity work for fixed-term contracts?

Fixed-term employees are now ENTITLED to gratuity proportionate to their tenure (even less than 5 years), per Industrial Relations Code 2020. However, implementation across states varies. For employees on multi-year fixed contracts, calculate as if covered. For sub-1-year contracts, generally no gratuity unless company policy specifies.

Can I receive gratuity multiple times in life?

Yes, every employer pays separately. But the ₹20 lakh tax-free limit is LIFETIME — across all employers combined. So if you got ₹10L from Employer A and ₹15L from Employer B, only ₹20L total is tax-free; ₹5L is taxable. Form 26AS / annual income statement tracks this.