Gratuity Calculator - FY 2026-27
Calculate statutory gratuity under the Payment of Gratuity Act 1972 + the income-tax exemption under Section 23 of IT Act 2025 (formerly Section 10(10) of IT Act 1961).
- Tax-exempt portion₹2,88,462
- Taxable portion (added to salary)₹0
- Statutory cap (Section 23 / 10(10))₹20,00,000
How statutory gratuity is calculated
Under the Payment of Gratuity Act 1972, an employee who completes 5 or more years of continuous service is entitled to gratuity on retirement, resignation, death, or disablement. For employees covered under the Act, the formula is:
Gratuity = (15 × Last drawn salary × Completed years) ÷ 26
"Salary" here means basic + DA. The divisor 26 represents the deemed number of working days in a month (the Act treats a month as 26 working days).
Section 23 (formerly 10(10)) exemption - tax-free portion
For non-government employees covered under the Gratuity Act, the exempt portion is the lowest of:
- Actual gratuity received
- ₹20,00,000 (the statutory cap raised from ₹10 lakh in 2018)
- 15 × last drawn salary × completed years ÷ 26
Government employees: the entire gratuity is exempt from income tax.
For employees not covered under the Gratuity Act, the formula changes to (1/2) × average salary of last 10 months × completed years, still subject to the ₹20 lakh cap.
FAQs
How is gratuity calculated for employees covered under the Payment of Gratuity Act?▾
Gratuity = (Last drawn monthly salary × 15 × number of completed years of service) / 26. "Salary" means basic + DA. Service period of 6 months or more in the last year is rounded up.
What is the maximum tax-free gratuity under Section 10(10) (Section 23 of IT Act 2025)?▾
For non-government employees covered under the Act, the maximum tax-free gratuity is ₹20,00,000 (raised from ₹10 lakh in 2018). For government employees, the entire gratuity is exempt.
Is gratuity tax-free if I receive less than ₹20 lakh?▾
For employees covered under the Payment of Gratuity Act, the exempt amount is the minimum of: (i) actual gratuity received, (ii) ₹20 lakh, or (iii) 15 days × last drawn salary × completed years of service ÷ 26. Excess over the minimum is taxable as salary.
When am I eligible for gratuity?▾
After 5 years of continuous service with the same employer. The 5-year requirement is waived in case of death or permanent disability.
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