Gratuity Tax Exemption Calculator
Estimate tax-free gratuity, taxable gratuity and simple tax under Section 19 of the Income-tax Act, 2025 for Tax Year 2026-27.
Last Updated: July 22, 2026Calculate Tax-Free and Taxable Gratuity
The default example uses ₹60,000 eligible monthly salary, 12 years and 7 months of service, and ₹5,00,000 gratuity received. Current notified limit used is ₹20 lakh.
Enter valid figures and select Calculate Exemption.
| Employee category | Salary basis | Service counted | Formula amount | Estimated exemption | Taxable amount |
|---|
This tool estimates a salary deduction, not employment-law entitlement. Employee category, eligible event, employer status, salary definition, actual receipt and past exemptions determine the filed result.
What Is a Gratuity Tax Exemption Calculator?
A gratuity tax exemption calculator separates a gratuity receipt into an estimated tax-free portion and a taxable portion. The calculation changes with the employee's category. A qualifying government death-cum-retirement gratuity can receive a full deduction. A covered non-government employee uses the statutory 15/26 formula. Another eligible non-government employee uses half of a 10-month average salary for each completed service year.
For tax years beginning on or after April 1, 2026, the current provision is Section 19 of the Income-tax Act, 2025. Section 10(10) belongs to the earlier Income-tax Act, 1961. People still search for Section 10(10), but Tax Year 2026-27 calculations should use the current law.
This tool calculates the category formula, current ₹20 lakh limit, prior deduction adjustment for the other-employee category, taxable balance, simple income tax, cess and gratuity remaining after estimated tax. It also compares all three category outcomes using the same inputs. The comparison helps you spot why choosing the correct employee category matters.
How to Use This Gratuity Tax Exemption Calculator
- Select the employee category stated in your employment and gratuity records.
- Enter last-drawn Basic Pay plus eligible DA for a covered employee.
- For another non-covered employee, enter the eligible average monthly salary for the 10 months immediately before the relevant event.
- Enter completed service years and additional months. The calculator applies the category-specific rounding rule.
- Enter gross gratuity received from the current employer.
- For the other-employee category, enter gratuity exemption or deduction allowed in earlier tax years.
- Enter a marginal tax rate for a simple tax estimate. Add 4% cess only when it is not already included in your rate.
- Select Calculate Exemption and review the formula, limit, tax-free amount and taxable amount.
- Compare the result with Form 16, the gratuity order, payroll records and your income-tax return data.
Gratuity Tax Rules for Tax Year 2026-27
| Employee category | Section 19 entry | Deduction basis | Service rule |
|---|---|---|---|
| Qualifying government or local-authority employee | Table serial 3 | Entire eligible death-cum-retirement gratuity | No calculator formula needed |
| Covered non-government employee | Table serial 5 | Actual receipt restricted to the statutory formula and ceiling | Part exceeding six months counts as another year |
| Other eligible non-government employee | Table serial 6 | Least of actual receipt, half-month formula and remaining notified limit | Completed years only |
Do not classify an employee as government only because the employer is a public-sector company, statutory corporation or government-controlled body. Section 19 defines the qualifying death-cum-retirement category through specified government pension rules, civil services and local-authority employment. Check the legal identity of the employer and the governing service rules.
The current Income-tax Act still describes the covered category through gratuity received under the Payment of Gratuity Act, 1972. Employment-law gratuity for exits on or after November 21, 2025 is governed by the Code on Social Security, 2020. The Ministry's March 2026 FAQs confirm that post-commencement gratuity uses last-drawn wages under the Code. This page uses the familiar covered tax formula while clearly separating tax deduction from employment-law entitlement.
Covered Employee Gratuity Exemption Formula
Formula
Formula amount = Last-drawn eligible monthly salary × 15 ÷ 26 × counted service years
Tax-free amount = Lowest of actual gratuity, formula amount and ₹20 lakh
For this tax calculation, enter the last-drawn monthly salary used by the statutory gratuity formula. Official tax guidance traditionally uses Basic Pay plus Dearness Allowance and excludes bonus, commission, HRA, overtime, other allowances, benefits and perquisites. Current labour-code wage treatment may affect the employer's gratuity calculation, so use the wage accepted in the final gratuity order when available.
A completed part of a year counts as another year only when it exceeds six months. Exactly 12 years and 6 months remains 12 years. Twelve years and 7 months becomes 13 years. The calculator keeps years and months separate to avoid an inaccurate decimal-year conversion.
Worked example for a covered employee
Assume eligible monthly salary is ₹60,000, service is 12 years and 7 months, and gratuity received is ₹5,00,000. Counted service is 13 years. The formula is ₹60,000 × 15 ÷ 26 × 13 = ₹4,50,000. The lowest of ₹5,00,000 received, ₹4,50,000 formula amount and ₹20,00,000 limit is ₹4,50,000. Estimated taxable gratuity is ₹50,000.
At a 20% marginal rate, tax before cess is ₹10,000. A 4% cess adds ₹400, producing a simple total estimate of ₹10,400. The calculator does not include surcharge, marginal relief, rebate, other income or return-level adjustments.
Other Non-Government Employee Formula
Formula
Formula amount = Average eligible monthly salary × 1 ÷ 2 × completed service years
Tax-free amount = Lowest of actual gratuity, formula amount and remaining notified limit
The salary input for this category is the average salary for the 10 months immediately before the month of retirement, incapacity or termination. Section 19 states that salary includes DA only when the employment terms provide for it and excludes all other allowances and perquisites. Fractions of a service year are ignored, so 12 years and 11 months still uses 12 years.
Assume the 10-month average salary is ₹60,000, completed service is 12 years and gratuity received is ₹5,00,000. The formula amount is ₹60,000 × 1/2 × 12 = ₹3,60,000. With no prior exemption, estimated tax-free gratuity is ₹3,60,000 and taxable gratuity is ₹1,40,000.
Section 19(2)(a) makes the notified limit cumulative for this category. If ₹19,00,000 was allowed in earlier tax years, only ₹1,00,000 of a ₹20,00,000 limit remains. The current deduction is still restricted by the actual receipt and half-month formula.
Government Employee Gratuity Treatment
Section 19 table serial number 3 permits the entire qualifying death-cum-retirement gratuity as a salary deduction. The definition covers receipts under the revised pension rules, Central Civil Services Pension Rules, 2021, similar schemes for specified civil services and employees of a local authority.
The full deduction is not a general rule for every organisation linked to government. Employees of government companies, public-sector undertakings, autonomous bodies and statutory corporations need to verify the applicable service rules and tax category. Select the government option only when records support the Section 19 definition.
The calculator shows the entire receipt as exempt for the government option and does not use salary or service in the formula. Salary and service fields remain available for comparison with the non-government categories.
Is the Gratuity Exemption Limit ₹20 Lakh?
The tool uses ₹20 lakh as the current notified ceiling for non-government gratuity calculations. The limit does not mean every gratuity receipt up to ₹20 lakh is automatically tax-free. The actual deduction is also restricted by the category formula and the amount received.
For a covered employee, a receipt of ₹8 lakh with a statutory formula amount of ₹6 lakh gives an estimated deduction of ₹6 lakh, not ₹8 lakh. For an other employee, earlier allowed gratuity deductions can reduce the available aggregate limit. A qualifying government receipt follows its separate full-deduction rule.
Employer payment and tax exemption are different questions. An employment contract, award or better employer policy may produce a gratuity above the statutory amount. The employer may validly pay the higher amount, while the portion outside the tax deduction remains taxable.
Gratuity Exemption Under Old and New Tax Regimes
Section 19 lists gratuity deductions separately from the standard deduction entry that distinguishes tax computation under Section 202(1). The category-based gratuity formula therefore does not disappear merely because an individual uses a different rate regime. The final tax on the taxable portion still depends on total income, selected regime, slab rates, rebate, surcharge, cess and relief.
The calculator asks for a marginal rate instead of recreating a full income-tax return. Use the Income Tax Calculator when you need slab-level computation. Avoid entering an all-inclusive effective rate and adding cess again.
When This Calculator Should Not Be Used Alone
- Gratuity paid during continuing employment may not meet a qualifying event.
- Seasonal establishments may use seven days' wages instead of the standard 15-day formula.
- Piece-rated employees require an average-wage method.
- Commission, overseas employment and unusual salary structures need a separate review.
- Multiple gratuity receipts in one year require aggregate testing.
- Prior deductions, employer mergers and transferred service need supporting records.
- Surcharge, marginal relief, rebate and tax-regime effects are outside this simple tax estimate.
- Employment eligibility, continuous service and forfeiture disputes require legal and payroll review.
Related Tax and Salary Calculators
Use these tools to check the gratuity amount, salary tax and wider retirement position.
Frequently Asked Questions
What is the gratuity tax exemption limit in Tax Year 2026-27?
The calculator uses the current ₹20 lakh notified limit for non-government gratuity. The actual deduction is the lowest applicable amount under the employee category, formula and receipt. Qualifying government death-cum-retirement gratuity follows a full-deduction rule.
Which section covers gratuity exemption from April 2026?
Section 19 of the Income-tax Act, 2025 applies for tax years beginning on or after April 1, 2026. Section 10(10) was the corresponding provision under the repealed Income-tax Act, 1961.
Is gratuity fully tax-free for every government-company employee?
No. Full deduction applies only to the qualifying government and local-authority category defined by Section 19. Employment in a government company, PSU, autonomous body or statutory corporation does not by itself prove eligibility.
How are six additional months of service treated?
For the covered formula, a part of a year counts only when it exceeds six months. Exactly six months does not round up, while seven months does. The other-employee formula ignores every fraction of a year.
What salary should a covered employee enter?
Enter the last-drawn monthly salary accepted for the gratuity formula, normally Basic Pay plus eligible DA. Do not add HRA, bonus, commission, overtime, other allowances, benefits or perquisites without payroll support.
What salary should an employee not covered by the statutory formula enter?
Enter the average eligible monthly salary for the 10 months immediately before the relevant month. Include DA only when the employment terms provide for it and exclude other allowances and perquisites.
Does earlier gratuity exemption reduce the current limit?
For the Section 19 table serial number 6 category, yes. Earlier gratuity allowed as an exemption or deduction reduces the notified aggregate limit available for the current receipt.
Is gratuity received while still employed tax-free?
Do not assume it is tax-free. Current rules identify specified retirement, incapacity and termination-related receipts. A payment during continuing service needs a separate tax review.
Does this calculator determine whether gratuity is payable?
No. It estimates the income-tax deduction after a gratuity receipt. Employment-law eligibility, continuous service, fixed-term rules, death or disability exceptions and employer disputes must be checked separately.