Gratuity is one of the retirement benefits provided by the employer to the employee in gratitude for the services rendered by the employee to the employer. As per the Payment of Gratuity Act 1972, gratuity is to be given by an institution having 10 or more employees. An employee will receive a gratuity
a. after superannuation
b. after resignation
c. after death (to be received by legal heirs) or
d. due to any disability accrued.
It is to be given only for the employees who have put in a minimum of five years of service except in case of the death of an employee wherein this 5 years cap doesn’t apply. The gratuity depends on the number of years of service rendered by the employee. If an employee has worked for a minimum of six months during a year, he will be qualified for a year of service for the purpose of calculating gratuity. For each year of service rendered, 15 days’ salary (for calculating 15 days’ salary, instead of 15/30, a factor of 15/26 is used as suggested by the Supreme Court of India) will be taken into account for the calculation purpose. The gratuity will be calculated as per the following formula:
Gratuity = (Last drawn salary * 15 * no of completed years of service)/26
Gratuity Calculator:
Use the following calculator to calculate your gratuity amount:
Tax Benefits:
Case-1: As per section 10(10)(i) of the Income Tax Act, the gratuity amount received by any Central government employee or state government employee, or employee of a local authority is fully exempt 
Case-2: In the case of non-government employees who are covered under the Payment of Gratuity Act 1972, as per section 10(10)(ii) of the Income Tax Act, the exemption on gratuity payment received from his employer will be limited to the least of the following:
1. 15 days of salary for each of the qualified years of service*
2. Rs. 20,00,000/- (hiked during September 2017 by the Government of India from earlier cap of Rs. 10 lakh)
3. Actual amount of gratuity received.
If an employee receives a higher amount than the least of the above three, such difference will be added to his income under the head ‘income from salary. In case such an amount was received by a legal heir due to the death of the employee, any excess payment over the least of the above three will be added to ‘Income from other sources.
*For the calculation of 15 days’ salary, as mentioned above, the factor of 15/26 will be considered.
Case-3: In the case of a non-government employee who is not covered under the Payment of Gratuity Act 1972, the exemption on gratuity will be the least of the following:
1. 15 days of salary for each of the qualified years of service**
2. Rs. 20,00,000/- (hiked during September 2017 by the Government of India from earlier cap of Rs. 10 lakh)
3. Actual amount of gratuity received.
**For the calculation of 15 days’ salary, the average salary of the last 10 months immediately preceding the month of retirement is considered.
Gratuity Tax Liability Calculator:
Use the following calculator to calculate your tax liability on receipt of gratuity from your employer: