Payment of Gratuity Act, 1972 · Covered & Non-Covered Employees · Updated 2026 Results update instantly as you adjust your salary and service years
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₹
₹5K₹5L
years
1years40years
Gratuity amount
₹2.88 L
you are eligible
Tax-exempt portion
₹2.88 L
up to ₹20L is tax-free
Taxable gratuity
₹0
fully tax-free 🎉
🏆
₹2.88 L gratuity after 10 years of service!
Based on ₹50,000/month basic+DA using the Payment of Gratuity Act (÷26). Your entire gratuity is tax-free under the ₹20L exemption.
Gratuity growth - year by year
GratuityTaxable portion
Yr 1Yr 2Yr 3Yr 4Yr 5Yr 6Yr 7Yr 8Yr 9Yr 10
Basic+DA
₹50,000/mo
Service
10 yrs
Formula
÷26
Gratuity
₹2.9L
Gratuity at different salary levels & tenures
Basic + DA / month
5 years
10 years
15 years
20 years
₹25,000/mo
₹72,115
₹1.4L
₹2.2L
₹2.9L
₹50,000/mo
₹1.4L
₹2.9L
₹4.3L
₹5.8L
₹75,000/mo
₹2.2L
₹4.3L
₹6.5L
₹8.7L
₹1.0L/mo
₹2.9L
₹5.8L
₹8.7L
₹11.5L
₹1.5L/mo
₹4.3L
₹8.7L
₹13.0L
₹17.3L
₹2.0L/mo
₹5.8L
₹11.5L
₹17.3L
₹23.1L
Calculated using the covered employee formula (÷26). All values capped at the ₹20L tax-exempt limit. Actual gratuity from employer may be higher — only the first ₹20L is tax-free.
Formula used
Gratuity = (Basic + DA × 15 × Years of Service) ÷ 26
Basic + DA = Last drawn basic salary + dearness allowance
15 = 15 days wages for every completed year
26 = 26 working days in a month (covered employees)
Cap = ₹20,00,000 (maximum tax-exempt gratuity)
Example: ₹50,000/month basic+DA, 10 years service (covered)
What is Gratuity? Complete Guide for Indian Employees
Gratuity is a one-time lump-sum payment made by an employer to an employee as a token of appreciation for long and continuous service. It is governed by the Payment of Gratuity Act, 1972 and is a statutory right — not a bonus. Every employee who has completed 5 or more years of continuous service is entitled to receive gratuity upon resignation, retirement, or death.
Think of gratuity as a loyalty reward — it grows directly with your salary and years of service. A ₹1 lakh/month employee who stays for 20 years walks away with over ₹11.5 lakh in gratuity — entirely tax-free.
Who is eligible for gratuity?
✓ Eligible when...
Completed 5+ years of continuous service
Resignation or voluntary retirement
Superannuation (retirement at set age)
Death — paid to nominee (no 5-yr rule)
Permanent disability — no 5-yr rule
Retrenchment or layoff
✗ Not eligible when...
Less than 5 years of continuous service
Dismissed for misconduct or violence
Contract employees (depends on contract)
Apprentices under Apprentices Act
Wilful omission or negligence causing loss
Employer below 10-employee threshold (Act may not apply)
The 4 years 240 days rule
If you work in an organisation where work happens for less than 6 days a week, completing 4 years and 240 days is treated as 5 full years — making you eligible for gratuity. This is a Supreme Court ruling and applies to most private sector employees.
Covered vs non-covered employees — what's the difference?
Covered (÷26)
Employees in organisations with 10 or more employees at any point are covered under the Payment of Gratuity Act. Gratuity is a legal right — the employer must pay it.
(Basic+DA × 15 × Years) ÷ 26
26 = working days in a month
Non-Covered (÷30)
Employers not covered under the Act may still choose to pay gratuity voluntarily. The formula uses 30 days instead of 26, resulting in a slightly lower amount.
(Basic+DA × 15 × Years) ÷ 30
30 = calendar days in a month
How is gratuity taxed in India?
Employee type
Tax exemption
Taxable amount
Government employees
Fully exempt — no limit
₹0
Covered private employees (Act applies)
Least of: actual gratuity, ₹20L, or 15 days salary × years
Amount above ₹20L
Non-covered private employees
Least of: actual gratuity, ₹20L, or half month salary × years
Amount above ₹20L
Important: ₹20 lakh limit is lifetime, not per employer
The ₹20 lakh tax-free gratuity limit is a lifetime exemption across all employers. If you receive gratuity from multiple employers over your career, the cumulative exemption cannot exceed ₹20 lakh. Track your exemptions in your ITR filings. Taxable gratuity is added to your income and taxed at your applicable slab rate.
What's your actual take-home salary?
Get a full CTC breakdown — PF, gratuity, tax, and net take-home
Employee must apply within 30 days of becoming eligible. Employer cannot reject a late application if delay is justified.
⏱️
Payment deadline
Employer must pay gratuity within 30 days of receiving the application. Delay attracts simple interest at the rate notified by the government.
⚖️
Dispute resolution
Disputes go to the Controlling Authority (usually Labour Commissioner). Appeal lies with Appellate Authority and then High Court.
Frequently asked questions about gratuity
Does gratuity include basic salary only, or the full CTC?▼
Gratuity is calculated only on your Basic Salary + Dearness Allowance (DA). Other components like HRA, special allowance, bonus, medical allowance, LTA, and other perquisites are excluded from the gratuity formula. This is why it's important to know your basic salary, not just your total CTC. In many private sector companies, the basic salary is set at 40–50% of CTC to manage the gratuity liability.
What happens to my gratuity if I resign before 5 years?▼
You are not entitled to gratuity under the Payment of Gratuity Act if you leave before completing 5 years of continuous service (except in case of death or disability). However, some employers — particularly large MNCs and PSUs — have their own gratuity policies that may provide proportional gratuity even before 5 years. Check your employment contract or HR policy. If your contract explicitly mentions gratuity on separation, you can claim it.
Can my employer forfeit or deduct gratuity?▼
Yes, under specific circumstances. The employer can forfeit gratuity (wholly or partially) if the employee's services were terminated due to: (a) wilful omission or negligence causing loss or damage to employer property, or (b) riotous or disorderly conduct or any other act of violence. The employer cannot forfeit gratuity for a simple resignation or poor performance. Forfeiture requires a formal inquiry and written order.
Is gratuity paid during notice period or after?▼
Gratuity is paid after the last working day, along with your full and final settlement. It is not part of your monthly salary. The employer typically credits gratuity within 30 days of receiving your written application. Most companies process it simultaneously with your F&F settlement, which includes pending salary, leave encashment, and other dues.
What is a gratuity fund and how does the employer provision for it?▼
To manage the gratuity liability, employers either pay a gratuity insurance premium to an insurer (like LIC's Group Gratuity Scheme) or set aside funds internally. SEBI-listed companies are required to disclose their gratuity liability in their balance sheets under AS-15 / Ind AS 19. From the employee's perspective, this is invisible — you simply receive the gratuity from your employer when you leave.
Is gratuity taxable if received from a trust or superannuation fund?▼
If gratuity is received from an approved gratuity fund (set up under the Income Tax Act), the exemption limits are the same — the lesser of actual gratuity, ₹20 lakh, or the formula-calculated amount. The source of payment (employer directly vs through a trust) doesn't change the tax treatment as long as the trust is approved by the Commissioner of Income Tax.
How is gratuity treated if I switch jobs multiple times?▼
Each employer pays gratuity separately based on your tenure with that specific company. You must complete 5 years with each employer to be eligible. The ₹20 lakh lifetime tax exemption, however, is cumulative across all employers — you must track your total gratuity received and exempt amounts across employers while filing ITR. If you've already used ₹12L of exemption at a previous job, only ₹8L remains for future gratuity.
What happens to gratuity if the employee passes away?▼
In case of the employee's death, gratuity is paid to the nominee or legal heir, and the 5-year service requirement is waived. The employee should designate a nominee using Form F at the time of joining or during employment. If no nominee is designated, the gratuity is paid to the legal heir (as per succession laws). The amount received by the nominee is fully exempt from income tax in their hands.
