Gratuity received is exempt up to ₹20 lakh under Section 10(10). Any amount beyond ₹20 lakh is taxable as income from salary. You need 5+ years of continuous service to be eligible for gratuity.

Gratuity Growth

How gratuity grows with each year of service

Gratuity is a retirement benefit that every salaried employee should track. It is a lump sum payment from your employer for long-term service, calculated using the formula (15/26) × last drawn salary × years of service. With tax exemption up to ₹20 lakh under Section 10(10), gratuity can form a meaningful part of your retirement corpus. Use the calculator above to estimate your gratuity and plan your career moves wisely.

Gratuity Amount for Different Salary & Service Combinations

Last Salary (Basic + DA)	5 Years	10 Years	15 Years	20 Years	30 Years
₹25,000	₹72,115	₹1,44,231	₹2,16,346	₹2,88,462	₹4,32,692
₹50,000	₹1,44,231	₹2,88,462	₹4,32,692	₹5,76,923	₹8,65,385
₹75,000	₹2,16,346	₹4,32,692	₹6,49,038	₹8,65,385	₹12,98,077
₹1,00,000	₹2,88,462	₹5,76,923	₹8,65,385	₹11,53,846	₹17,30,769
₹1,50,000	₹4,32,692	₹8,65,385	₹12,98,077	₹17,30,769	₹20,00,000 (max exempt)

Tax exemption under Section 10(10) is capped at ₹20,00,000. Any amount above this is taxable as salary income.

Important Facts About Gratuity

Eligibility Requires 5 Years

You must complete 5 continuous years in the same organization. However, gratuity is payable even before 5 years in case of death or disablement.

Applies to 10+ Employee Establishments

The Payment of Gratuity Act, 1972 applies to all factories, mines, oilfields, plantations, and establishments with 10 or more employees.

Employer Bears the Full Cost

Gratuity is fully funded by the employer — no employee contribution. Employers often insure this through a group gratuity scheme with an insurance company.

Maximum Exempt Limit: ₹20 Lakh

Under Section 10(10), the maximum tax-exempt gratuity is ₹20 lakh. For government employees, the entire gratuity is tax-exempt with no upper limit.

How to Calculate Gratuity

In plain words

Gratuity is a lump sum payment made by an employer to an employee as a token of appreciation for continuous service. It is governed by the Payment of Gratuity Act, 1972, which applies to establishments with 10 or more employees. The formula uses 15 days salary for each completed year of service, calculated based on 26 working days per month.

How the calculation works

Gratuity = (15 ÷ 26) × Last Drawn Salary × Years of Service

Where:
Last Drawn Salary = Basic Pay + Dearness Allowance (DA)
15 ÷ 26 = 15 days salary for each completed year
Years of Service = Total years of continuous service (≥ 5 years)

Tax Exemption = min(Gratuity Amount, ₹20,00,000)

Note: 26 working days per month is used (not 30), as per the Payment of Gratuity Act, 1972.

A quick example

Let us calculate gratuity for an employee with ₹50,000 last drawn salary and 15 years of service:

Last Drawn Salary (Basic + DA):₹50,000

Years of Continuous Service:15 years

Step by step

1.Gratuity = (15 ÷ 26) × ₹50,000 × 15
2.Gratuity = 0.5769 × ₹50,000 × 15
3.Gratuity = ₹28,846 × 15
4.Gratuity = ₹4,32,690
5.Tax exemption = min(₹4,32,690, ₹20,00,000) = ₹4,32,690 (fully exempt)

So the answer is: Gratuity Amount = ₹4,32,690 | Fully Tax Exempt (under ₹20L limit)

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Frequently Asked Questions

Who is eligible for gratuity?

An employee is eligible for gratuity after completing 5 years of continuous service in the same organization. The gratuity is payable under the Payment of Gratuity Act, 1972, which applies to all establishments with 10 or more employees. Even if you leave before 5 years, gratuity may be payable in case of death or disablement.

How is gratuity calculated?

Gratuity is calculated using the formula: (15 ÷ 26) × Last Drawn Salary × Years of Service. Last drawn salary includes Basic Pay and Dearness Allowance (DA). The factor 15/26 represents 15 days of salary for each year of service, calculated on a 26-working-day month basis.

What is the tax exemption limit for gratuity?

Under Section 10(10) of the Income Tax Act, gratuity received by any employee (government or private) is exempt up to ₹20 lakh. Any amount exceeding ₹20 lakh is taxable as income from salary. For government employees, the entire gratuity is tax-exempt.

Is gratuity paid if I resign before 5 years?

Generally no. The Payment of Gratuity Act requires a minimum of 5 years of continuous service. However, if the employee dies or becomes disabled due to accident or disease, gratuity is payable even if the 5-year condition is not met. Some organizations may have their own gratuity policies that are more generous.

How is gratuity funded?

Employers typically fund gratuity through a group gratuity insurance scheme with an insurance company or through a gratuity trust. The employer contributes a calculated amount each year based on actuarial valuation. Employees do not contribute to gratuity — it is fully funded by the employer.