Service period
Takes completed years plus extra months. For Act-covered employees, more than six months rounds up to a full year; for others, part-years are ignored.
Reviewed for current filing season: 10 June 2026
Gratuity Calculator: Amount and Tax Exemption for FY 2025-26
Estimate the gratuity payable on retirement, resignation or termination using the statutory 15/26 formula, and check how much of it is exempt from income tax under Section 10(10) for FY 2025-26 (AY 2026-27).
Current rules: The Payment of Gratuity Act, 1972 pays 15 days of last drawn wages per completed year of service, with service beyond six months in the final year rounded up. The tax-free ceiling under Section 10(10) for non-government employees is Rs 20 lakh (lifetime limit), while government employees' gratuity is fully exempt. ITR filing for AY 2026-27 is open; the due date for most non-audit individuals is 31 July 2026.
Covered under the Act
(15/26) x last drawn monthly salary (basic + DA) x years of service, with more than six months in the final year rounded up to a full year.
Not covered under the Act
(15/30) x monthly salary x completed years of service. Part of a year is ignored and no rounding up applies.
Tax exemption
Least of gratuity received, Rs 20 lakh lifetime cap, and the formula amount is exempt under Section 10(10). The balance is taxable as salary.
Calculate Gratuity and Taxable Amount
Enter your last drawn monthly basic salary plus dearness allowance and your length of service. The calculator applies the Payment of Gratuity Act formula and estimates the Section 10(10) exemption.
Important limits
- Gratuity normally requires at least 5 years of continuous service. This condition does not apply on death or disablement of the employee.
- The Rs 20 lakh exemption under Section 10(10) is a lifetime limit. Exemption claimed from earlier employers reduces the limit available now.
- For employees not covered by the Act, the income tax rules use the average salary of the last 10 months; this calculator uses the last drawn salary you enter as an approximation.
- Salary for gratuity means basic pay plus dearness allowance. Other allowances, bonus and perquisites are excluded.
Retiring or switching jobs this year?
All India ITR can compute the exact exempt and taxable gratuity, reconcile Form 16 and AIS, and file your salary return for AY 2026-27.
- Section 10(10) exemption working
- Full and final settlement review
- Form 16, AIS and Form 26AS reconciliation
Leave encashment, pension commutation and notice-pay recovery have separate tax rules; ask an expert before filing.
How Gratuity Is Calculated in 2026
Gratuity is a statutory retirement benefit paid by an employer for long and continuous service. For establishments covered by the Payment of Gratuity Act, 1972 (generally factories, mines, plantations, ports, railways, shops and establishments with 10 or more employees), the Act fixes both the eligibility and the formula. The employee must normally complete five years of continuous service, except where service ends because of death or disablement. Gratuity then equals 15 days' wages for every completed year of service, where a month is treated as 26 working days:
Gratuity = (15 / 26) x last drawn monthly salary (basic + DA) x years of service
If the service in the final year exceeds six months, that part-year is rounded up to a full year. For example, 14 years and 7 months counts as 15 years, while 14 years and 5 months counts as 14 years. For employees not covered by the Act, there is no statutory formula for payment, but the income tax exemption is computed at half a month's salary (15/30) for each completed year, ignoring any part of a year.
Tax Exemption on Gratuity Under Section 10(10)
| Employee category | Exempt amount for FY 2025-26 |
|---|---|
| Central / State government, local authority | Fully exempt under Section 10(10)(i) |
| Non-government, covered under Gratuity Act | Least of: gratuity received; Rs 20,00,000; (15/26) x last drawn salary x years (part-year over 6 months rounded up) |
| Non-government, not covered under Act | Least of: gratuity received; Rs 20,00,000; (15/30) x average salary of last 10 months x completed years |
Any gratuity above the exempt amount is taxable under the head salary in the year of receipt. The Rs 20 lakh ceiling is a lifetime aggregate: exemption already claimed on gratuity from a previous employer reduces what remains available.
Worked Examples
Covered employee, 14 years 7 months
Last drawn basic + DA of Rs 60,000 and 14 years 7 months of service rounds up to 15 years. Gratuity = (15/26) x 60,000 x 15 = Rs 5,19,231. If the employer pays exactly this, the full amount is exempt under Section 10(10).
Employer pays more than the formula
Same employee, but the employer pays Rs 6,00,000. Exemption is the least of Rs 6,00,000, Rs 20,00,000 and Rs 5,19,231, so Rs 5,19,231 is exempt and Rs 80,769 is taxable as salary.
Senior employee hitting the cap
Basic + DA of Rs 3,00,000 and 30 years of service gives a formula amount of Rs 51,92,308. Exemption is capped at Rs 20,00,000; the rest of whatever is received is taxable.
How the calculator works
Formula amount
Applies (15/26) of monthly basic + DA per year for covered employees, or (15/30) per completed year for employees not covered by the Act.
Exemption
Computes the Section 10(10) exemption as the least of the amount received, Rs 20 lakh and the formula amount. Government employees are fully exempt.
Taxable balance
Shows the taxable gratuity, if any, which is added to salary income and taxed at your slab rate in the year of receipt.
Frequently Asked Questions
How is gratuity calculated under the Payment of Gratuity Act?
Gratuity is (15/26) x last drawn monthly basic + DA x years of service. Service of more than six months in the final year counts as a full year. For 14 years 7 months at Rs 60,000, gratuity is (15/26) x 60,000 x 15 = Rs 5,19,231.
Is 4 years and 7 months of service eligible for gratuity?
The Act normally requires five years of continuous service, except on death or disablement. Some judicial decisions have accepted 4 years and 240 days, but that depends on the facts of the case and is not a guaranteed rule.
How much gratuity is tax-free in FY 2025-26?
For non-government employees, the least of the amount received, Rs 20 lakh (lifetime) and the statutory formula amount is exempt under Section 10(10). Government employees' gratuity is fully exempt.
What if my employer is not covered under the Gratuity Act?
The exemption is based on (15/30) x salary x completed years of service, with part-years ignored. The tax rules use the average salary of the last 10 months for this computation.
Where is gratuity reported in the income tax return?
Exempt gratuity is disclosed under exempt income (Section 10(10)); any taxable portion forms part of salary income. Reconcile the figures with Form 16 and AIS before filing.
Get your salary return filed by All India ITR experts
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More AY 2026-27 tax guides
Save tax: Home loan benefits · NPS (80CCD) · Donations (80G) · Education loan (80E) · Interest income (80TTA/80TTB) · Form 15G/15H · Capital gains exemptions (54/54F/54EC)
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Calculators and tools: Income tax calculator · Advance tax calculator · 80C tax-saving calculator · NPS calculator · Gratuity calculator · EPF calculator · Crypto tax calculator · HRA calculator
Filing and compliance: Section 87A rebate · Marginal relief · Form 10-IEA · PAN-Aadhaar link · AIS and TIS · ITR-U updated return · Discard ITR and condonation · TDS on rent and property · Income Tax Act 2025
Sources reviewed
- Income Tax Department: Salaried individuals for AY 2026-27 - exempt allowances including gratuity
- Income Tax Department: Exempt income under Section 10 of the Income-tax Act
- Ministry of Labour and Employment: The Payment of Gratuity Act, 1972
This calculator gives an estimate for FY 2025-26 (AY 2026-27) as on 10 June 2026 using last drawn salary. Continuous-service disputes, the 10-month average salary rule for non-covered employees, multiple-employer lifetime limits and death/disability cases need case-specific review before filing.
