Calculate gratuity amount for of service with last drawn salary of ₹500,000. Check tax exemption limits.
Calculate gratuity amount for of service with last drawn salary of ₹500,000. Check tax exemption limits.
How Does the Gratuity Formula Work?
The calculation heavily depends on whether your company is covered under the Payment of Gratuity Act (generally, an establishment with 10 or more employees).
Gratuity = (15 × Last Drawn Salary × Years of Service) / 26Where:
- • 15 = Represents 15 days of wages for every completed year of service
- • 26 = Total working days in a month (excluding Sundays)
- • Last Drawn Salary = Only Basic Salary + Dearness Allowance (DA)
- • For employees NOT covered under the Act: The divisor is 30 instead of 26.
- Eligibility Rule: You MUST complete 5 years of continuous service with the same employer.
- The Rounding Rule: If you work for 7 years and 7 months, it is rounded up to 8 years. If you work for 7 years and 5 months, it stays at 7 years.
- The 4 Years 240 Days Exception: Thanks to legal precedents, working 4 years and 240 days in the 5th year legally qualifies as exactly 5 years of continuous service for gratuity purposes.
- Tax Exemption Limit: For private employees, gratuity up to ₹20 Lakhs is completely tax-free under Section 10(10) of the Income Tax Act.
Example: Private Sector Gratuity Calculation
Venkatesh is resigning after working at a private IT company for 8 years and 7 months.
His Final Salary Details:
• Basic Salary: ₹80,000
• Dearness Allowance (DA): ₹20,000
• (Ignore HRA/Special Allowance)
• Total Applicable Salary: ₹1,00,000/month
The Calculation:
Since his tenure is over 8 years 6 months, it rounds up to 9 years.
Formula: `(15 × ₹1,00,000 × 9) / 26`
Result: Venkatesh will receive a statutory gratuity payout of ₹5,19,230. Since this is well below the ₹20 Lakh limit, it is 100% Tax-Free.
Applicable Salary (Basic+DA): ₹1,00,000
Service Tenure (Rounded): 9 Years
Gratuity Amount: ₹5,19,230
Tax Status: 100% Exempt (Under 20L limit)
Gratuity Tax Rules by Employee Type
How Income Tax treats your Gratuity payout:
| Employee Type | Tax Exemption Limit | Taxation on Excess Amount |
|---|---|---|
| State/Central Govt Employee | Fully Exempt (No Limit) | Not Applicable |
| Private Employee (Covered under Act) | Up to ₹20 Lakhs | Taxed directly at your Income Tax Slab rate |
| Private Employee (Not Covered) | Lowest of: ₹20L, Actual Gratuity, or Half-month salary per year | Taxed directly at your Income Tax Slab rate |
Frequently Asked Questions
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The figures provided by this calculator are estimates based on the inputs you provide and standard financial formulas. STOCKCALC.IN does not offer investment advice. Please consult a qualified financial advisor before making any investment decisions.