Gratuity is a financial benefit received by the salaried person from their employers for their long-term service. It is a token of appreciation for an employee’s dedication and hard work. In India, gratuity is regulated under the Payment of Gratuity Act, 1972.
The amount of gratuity depends on the employee’s last drawn salary and the number of years they have served. It provides employees with financial security and is a significant component of retirement benefits.
To be eligible for gratuity, an employee must meet the following criteria:
1. The employee must have completed at least five years of continuous service with the employer.
2. Gratuity is payable when an employee:
The tax treatment of gratuity depends on whether the employee is a government or non-government employee.
1. For Government Employee
2.For Non-Government Employee
Gratuity is partially exempt under Section 10(10)(ii) or Section (10)(iii) of the Income Tax Act. The amount of tax exempt is determined by following factors:
For any gratuity received beyond these limits, the excess amount is taxable and is added to the employee’s total income of the financial year. This is where a taxable gratuity calculator comes in handy to help calculate tax liability accurately.
The formula for gratuity calculation varies based on whether the employee is covered under the Payment of Gratuity Act or not.
For Employees Covered Under the Act:
Gratuity = (Last Drawn Salary × 15 × Years of Service) ÷ 26
Where,
For Employees Not Covered Under the Act:
The formula is:
Gratuity = (Last Drawn Salary × 15 × Years of Service) ÷ 30
Here 30 is used instead of 26 because the Act doesn’t apply.
Example Calculation:
Suppose an employee worked for 10 years and 8 months in an organization with a last drawn salary of Rs 50,000.
Please note working tenure round up the years of service exceeds 6 months. So 10 years and 8 months is counted as 11 years.
Gratuity is (50,000 x 11x 15) /26 = Rs. 3,17,307
Or you can use our free Taxable Gratuity Calculator to find out the gratuity tax exemptions accurately without doing any math!
Using our calculator is simple. Just follow simple steps:
First, choose whether you are covered under the Gratuity Act or not.
Following are some of perks of using our gratuity calculator:
We provide expert guide also guaranteed maximum refunds on your income tax returns, with additional expenses from you.
File your ITRHere are some common questions we receive from our customers. If you have any additional questions, please don’t hesitate to contact us.
A gratuity calculator is an online tool that helps employees (particularly non-government employees) quickly estimate the portion of your gratuity that is subject to income tax. You need to enter the last drawn salary, years of service, and total gratuity received to calculate the exempt and taxable portions. Our calculator is simple to use and helps you to avoid manual calculations.
No, a gratuity is only payable to employees who have completed at least 5 years of continuous service. However, in case of death or disability, this condition is not applicable.
Gratuity is calculated using a simple formula:
Gratuity = (Years of service) × (Last drawn salary + Dearness Allowance) × 15 / 26. Here,
You can calculate the taxable portion by subtracting the tax-exempt gratuity which is up to Rs 20 lakh from the total gratuity received. Our taxable gratuity calculator can help you determine this with accuracy.
Under the Payment of Gratuity Act, the maximum gratuity an employee can receive is Rs 20,00,000.
According to the Payment of Gratuity Act, 1972, gratuity is calculated as 4.81% of the basic salary.
No, gratuity is fully exempt from tax for government employees. They do not need to calculate taxable gratuity as per the Income tax Act.
Yes, gratuity is applicable to contractual workers as long as they meet the eligibility criteria of service for 5 years or more.
No, Rs 20 lakh exemption is a lifetime limit. If you have already received Rs 20 lakh in gratuity from previous jobs, any gratuity received from future employment will be fully taxable.
Yes, our gratuity calculator can be used by government and non-government employees both. However, it is particularly useful for non-government employees who need to calculate the taxable portion of their gratuity.