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Gratuity: Calculation and Tax

Understanding gratuity calculation, eligibility, and tax implications for employees under Payment of Gratuity Act.

GetYourCA Team
1 February 2025·Updated 9 April 20261 min read12.5K views
"Gratuity""Employee Benefit""Tax""Calculation"

Gratuity: Calculation and Tax

What is Gratuity?#

Gratuity is a lump sum payment by employer to employee for services rendered.

Eligibility#

  • 5 years of continuous service
  • Retirement, resignation, death

Calculation Formula#

Gratuity = (15 × Last drawn salary × Years of service) / 26

Tax Exemption#

  • Under Payment of Gratuity Act: Fully exempt
  • Non-covered: ₹10 lakh exempt

Tax Treatment#

AmountTax
Up to ₹10 lakhExempt
Above ₹10 lakhTaxable

Conclusion#

Gratuity provides financial security to employees.

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Disclaimer

We have taken utmost care to research and write this article for your information. However, tax laws are complex and subject to frequent changes. This article is for general guidance only and should not be considered professional advice. Individual circumstances vary significantly — what works for one person may not apply to another.

Before making any tax-related decisions, we strongly recommend consulting with a qualified Chartered Accountant or tax professional who can assess your specific situation. We do not accept any liability for decisions made based on this information.

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