How much gratuity is tax-free in India?

Gratuity received up to ₹20 lakh (₹20,00,000) is completely tax-exempt for employees covered under the Payment of Gratuity Act. Any amount above ₹20L is taxable at your applicable income tax slab rate. For government employees, the full gratuity is exempt (no ₹20L cap). For uncovered employees, the least of: actual gratuity, last salary × ½ × years, or ₹10L is exempt.

What is the maximum gratuity payable under the Gratuity Act?

The maximum gratuity under the Payment of Gratuity Act is ₹20,00,000 (₹20 lakh). This limit was revised from ₹10L to ₹20L in 2018. Employers can pay more than ₹20L voluntarily, but the tax exemption applies only up to ₹20L for covered employees.

When is gratuity paid to an employee?

Gratuity becomes payable on: (1) retirement or resignation after 5+ years; (2) death or disablement (no 5-year condition); (3) termination after 5+ years of service. The employer must pay gratuity within 30 days of it becoming due. Delayed payment attracts interest at the rate applicable to your state.

Gratuity Calculator India 2026 — Payment of Gratuity Act

Q: What is the gratuity formula in India?

For employees covered under the Payment of Gratuity Act 1972: Gratuity = (Last Basic+DA Salary × 15 × Years of Service) ÷ 26. For employees not covered: Gratuity = (Last Basic+DA × 15 × Years) ÷ 30. The number 26 represents working days in a month (excluding Sundays) and 15 represents half a month's salary per year of service.

Q: Is 5 years of service mandatory for gratuity?

Yes, under the Payment of Gratuity Act, minimum 5 years of continuous service is required for gratuity eligibility. However, partial years are rounded: if you've worked 4 years and 7+ months, it's counted as 5 years. Exception: if an employee dies or becomes disabled, gratuity is payable even before 5 years. Some employers voluntarily pay gratuity before 5 years.

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Gratuity Calculator — Payment of Gratuity Act 1972

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Last Basic + DA Salary (₹/month)

Employee Type

Years of Service (completed)

Additional Months (0–11) 6+ months = 1 extra year

Gratuity Amount

₹0

Years Counted

✅ Tax-Exempt (up to ₹20L)₹0

⚠️ Taxable Portion₹0

Formula: (Salary × 15 × Years) ÷ 26

Last Basic + DA Salary—

Service Years (rounded)—

Divisor Used—

Maximum Payable (capped at ₹20L)₹20,00,000

Final Gratuity Payable—

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Gratuity Calculation Formula

Covered Under Gratuity Act

(Salary × 15 × Years) ÷ 26

For private sector companies with 10+ employees

Not Covered Under Act

(Salary × 15 × Years) ÷ 30

For companies with fewer than 10 employees

✅ Tax Exemption: Gratuity up to ₹20,00,000 is fully exempt from income tax for covered employees. Amount above ₹20L is taxable at your income tax slab rate.

Gratuity Eligibility & Rules

Criterion	Rule
Minimum service	5 continuous years
Partial year rounding	6+ months = 1 full year
Maximum gratuity (covered)	₹20,00,000
Tax exemption limit	₹20,00,000 (2018 revision)
Payment due date	Within 30 days of becoming due
Death/disability	Payable even before 5 years

★★★★★

"Calculated my gratuity before resigning. The tool correctly applied the ÷26 formula and showed I was entitled to ₹8.65L — exactly what my employer paid."

Vinod Sharma — Senior manager, Mumbai

★★★★★

"The tax-exempt vs taxable split is incredibly useful for my HR clients. Saves explaining the ₹20L limit every time. I share this link regularly."

Priya Nambiar — HR consultant, Bangalore

★★★★☆

"The month rounding rule is clearly explained here — 6+ months count as a full year. My colleague got 1 extra year counted because of this, adding ₹60K to his gratuity."

Suresh Patil — Factory worker, Pune

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Frequently Asked Questions

What is the gratuity formula in India?+

For covered employees: Gratuity = (Salary × 15 × Years) ÷ 26. For uncovered: ÷ 30. "Salary" is last drawn Basic + DA (not CTC). 15 = half a month's salary per year. 26 = working days in a month (excluding Sundays). Example: ₹50,000 × 15 × 10 ÷ 26 = ₹2,88,461.

Is 5 years of service mandatory for gratuity?+

Yes, minimum 5 continuous years is required. However, partial years are rounded: 4 years 7 months = 5 years (6+ months in any year = full year). Exception: In case of death or permanent disability, gratuity is payable even before completing 5 years of service.

How much gratuity is tax-free?+

Gratuity up to ₹20,00,000 is completely tax-exempt for covered employees (revised in 2018). Government employees have no cap — full gratuity is exempt. For uncovered employees, the exempt amount is the least of: actual gratuity, last salary × ½ month × years, or ₹10L.

Can an employer withhold gratuity?+

Gratuity can only be forfeited if the employee was terminated for willful omission, misconduct causing damage or loss, or acts of violence. Normal resignation or retirement after 5+ years qualifies for full gratuity. Unfair forfeiture can be contested before the Controlling Authority under the Payment of Gratuity Act.

When must gratuity be paid?+

Employer must pay gratuity within 30 days of the date it becomes due (date of resignation/retirement). Delayed payment attracts simple interest at the bank rate applicable. If the employer denies gratuity, the employee can file a complaint with the Controlling Authority (typically labour commissioner) in the state.

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Gratuity Calculator — Payment of Gratuity Act 1972

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