Calculate exact statutory gratuity under The Payment of Gratuity Act, 1972, verify 5-year continuous service eligibility, and check your ₹20 Lakh Section 10(10) tax exemption.
Dearness Allowance (DA) (₹)Excludes HRA & Bonus per Section 2(s)
Completed Years: 6
Additional Months: 7
Statutory Derivation & Rules Tracker
Last Drawn Wages (Basic + DA)₹50,000
Statutory Rounding Rule7 Completed YearsSince months (7) > 6, tenure rounded UP to 7 years per Section 4(2).
Applicable Formula Divisor26 Working Days / Month26 working days derived from Supreme Court ruling (Shri Digvijay Woollen Mills Ltd vs Mahendra Prataprai Buch, 1980).
0 Years (Start of Employment)2.5 Years5.0 Years (Statutory Qualifying Threshold)Current: 6 yrs 7 mos (6.58 yrs)
Section 10(10) Income Tax Exemption vs Taxable Breakdown
Tax-Exempt Amount: ₹2,01,923 (100%)
Taxable Excess: ₹0 (0%)
Tax-Exempt Gratuity
₹2,01,923
Taxable Gratuity Portion
₹0
Formula Computed Amount
₹2,01,923
Estimated Statutory Gratuity Payable by Employer
₹2,01,923
Calculated using Section 4(2) Covered Establishment (15/26) with 7 completed years of service.
Mathematical Proof & Statutory Derivation
Step 1 (Last Drawn Wages): Basic Pay (₹50,000) + Dearness Allowance (₹0) = ₹50,000 per month. Step 2 (Tenure Rounding): Total tenure of 6 years and 7 months is evaluated under Section 4(2) Covered Establishment (15/26). Completed years = 7 years. Step 3 (Daily Wage Conversion): Monthly wages are divided by 26 working days (50000 ÷ 26 = ₹1923.08/day). Step 4 (15 Days Wages per Year): Gratuity = 15 × ₹1923.08 × 7 = ₹2,01,923. Step 5 (Tax Exemption Test): Under Section 10(10), Private sector employees are capped at ₹20,00,000. Exempt = ₹2,01,923, Taxable = ₹0.
About the Gratuity Calculator
Calculate your exact statutory retirement or resignation gratuity under The Payment of Gratuity Act, 1972. Instantly verify whether you meet the mandatory 5-year continuous service rule and discover your exact tax-free exemption limit up to ₹20 Lakhs under Section 10(10) of the Income Tax Act.
Mathematical Formula & Logic
For employees covered under the Payment of Gratuity Act, gratuity is calculated as 15 days of your last drawn basic salary plus Dearness Allowance (DA) for every completed year of service, divided by 26 working days in a month. If your remaining months exceed 6 months, your tenure is rounded up to the next full year. For non-covered employers, the formula uses half a month's average salary divided by 30 days, ignoring any fractional months.
Covered Establishment Gratuity Formula (Section 4(2)): Gratuity = (15 * (BasicSalary + DearnessAllowance) * CompletedYears) / 26
Not Covered Establishment Gratuity Formula (Section 10(10)(iii)): GratuityUncovered = (15 * AverageMonthlySalary * CompletedFullYears) / 30
Step-by-Step Example
Example 1 (Covered Employee): If your last drawn basic salary + DA is ₹60,000 and you resign after 6 years and 7 months of continuous service, your tenure rounds up to 7 completed years. Using the 15/26 formula: (15 × ₹60,000 × 7) ÷ 26 = ₹3,23,077. Since this is well below the ₹20 Lakh statutory ceiling, the entire ₹3,23,077 is 100% tax-free under Section 10(10)(ii).
Example 2 (Not Covered Employee): If your basic + DA is ₹60,000 and your employer is not covered under the Act, your tenure of 6 years and 7 months is counted strictly as 6 completed years (fractional months ignored). Using the 15/30 formula: (15 × ₹60,000 × 6) ÷ 30 = ₹1,80,000. Your payout is ₹1,80,000, all of which is tax exempt.
Frequently Asked Questions
For covered employees, gratuity = (15 × Last Drawn Basic + DA × Completed Years) ÷ 26. For non-covered employees, gratuity = (15 × Average Salary × Completed Years) ÷ 30. Covered employers use a 26-day divisor which gives a 15.38% higher payout per year.
Under Section 4(1) of the Payment of Gratuity Act, 1972, an employee must render continuous service of at least five (5) years with the same employer to qualify for gratuity upon resignation or retirement. However, if termination is due to death or disablement, the 5-year rule is waived.
No. While Section 4(2) rounds up service exceeding 6 months for calculation purposes, Indian courts (including Madras High Court in Mettur Beardsell Ltd) have held that you must first complete 5 continuous calendar years (or 240 actual working days in the 5th year for 6-day establishments) under Section 2A to become eligible under Section 4(1).
For private sector employees, the maximum tax exemption limit under Section 10(10)(ii) and (iii) is ₹20,00,000 (₹20 Lakhs), increased from ₹10 Lakhs in 2018. For Central and State Government employees, gratuity is 100% tax exempt without any upper monetary limit under Section 10(10)(i).
Only Basic Salary and Dearness Allowance (DA) are included in the wages for calculating gratuity. All other allowances including HRA, conveyance, special allowance, bonus, and overtime are strictly excluded from the last drawn wages under Section 2(s) of the Act.
The Supreme Court of India in Shri Digvijay Woollen Mills Ltd. vs Mahendra Prataprai Buch (1980) ruled that since an employee is paid monthly wages for 26 working days (excluding 4 Sundays), the daily wage must be derived by dividing the monthly salary by 26 rather than 30.
If an employee dies during service, their nominee or legal heir receives the full calculated gratuity based on completed years of service immediately. The mandatory 5-year continuous service eligibility rule is completely waived under the proviso to Section 4(1).
Yes, an employer can voluntarily pay gratuity exceeding ₹20 Lakhs if stipulated in the employment contract or company policy. However, any amount paid above the statutory exemption limit of ₹20 Lakhs will be taxable in the hands of the employee as salary income.