Is service of 4 years and 8 months eligible for gratuity?

Under several judicial precedents and the Madras High Court ruling, if an employee works for 4 years and 240 days (or more than 6 months in the 5th year), the tenure rounds up to 5 completed years, making the employee eligible for gratuity.

What is the maximum tax-free gratuity limit in India?

Under Section 10(10) of the Income Tax Act, the maximum cumulative tax-free gratuity an employee can receive across their entire career from private employers is ₹20 Lakh. For government employees, gratuity is entirely tax-exempt without any cap.

Can an employer pay gratuity higher than the statutory formula?

Yes, an employer can willingly pay a higher gratuity than the statutory formula as a performance or retention reward. However, any amount exceeding the ₹20 Lakh lifetime ceiling is taxable at the employee's income tax slab rate.

EMPLOYEE BENEFIT TOOL

Gratuity Calculator

Calculate your gratuity eligibility and tax-exempt portion

Employee & Service Details

Employee Category

Private employees are subject to tax based on Act coverage.

Last Drawn Monthly Salary (Basic + DA)

₹10,000₹10 Lakhs

Years of Service

Years

Additional Months

Months

Covered under Gratuity Act?

Generally yes if company has 10+ employees. (Does not apply to Govt)

Actual Gratuity Received (Optional)

Leave empty to use calculated eligibility for tax analysis

FINANCIAL GUIDE

How Is Gratuity Calculated Under the Payment of Gratuity Act 1972?

Gratuity is a statutory monetary benefit paid by an employer to an employee in recognition of long-term continuous service upon retirement, resignation, or superannuation.

Under the Payment of Gratuity Act 1972, gratuity is calculated using the formula: Gratuity = (15 * Last Drawn Basic Salary + DA * Completed Years of Service) / 26, where a working month is calculated as 26 working days.

To qualify for gratuity upon resignation, an employee must have completed at least 5 years of continuous service with the organization (the 5-year requirement is waived in the unfortunate event of death or total disablement).

Gratuity Eligibility Rules & Legal Provisions

Parameter	Details & Guidelines
Eligibility Criteria	Minimum 5 years of continuous service with the employer.
Calculation Formula	(15 * [Basic + DA] * Tenure) / 26.
6-Month Rounding Rule	Service exceeding 6 months in the final year is rounded up to the next full year.
Statutory Tax-Free Limit	Up to ₹20,00,000 is 100% tax-free under Section 10(10) for non-government employees.
Government Employees	Gratuity received by Central, State, and Defence employees is 100% tax-free with no upper ceiling.
Applicability	Mandatory for all establishments employing 10 or more individuals.

Gratuity vs EPF vs Voluntary Retirement

Statutory Gratuity

Fully employer-funded statutory lump sum upon separation after 5 years, tax-free up to ₹20 Lakh.

Employees' Provident Fund (EPF)

Co-contributed retirement corpus (12% employee + 12% employer) with guaranteed 8.25% interest.

Try EPF Calculator →

National Pension System (NPS)

Calculate long-term retirement pension and lump sum wealth accumulation with NPS Tier-1 tax benefits.

Try NPS Calculator →