Gratuity example
Gratuity on ₹1,00,000 salary after 20 years
If your last drawn basic plus DA is ₹1,00,000 a month and you leave after 20 years, your gratuity is ₹11,53,846: 15 days' pay for each year of service. All of it is within the ₹20 lakh tax-free limit.
Result
₹11,53,846
Gratuity after 20 years
- 15 days' pay (one year's gratuity)
- ₹57,692
- Years counted
- 20
- Tax-free
- ₹11,53,846
- Taxable
- ₹0
At this salary, gratuity reaches the ₹20 lakh tax-free limit after about 35 years of service.
A part year of six months or more counts as a full year, so leaving at 9 years and 6 months is paid as 10 years.
Gratuity on ₹1,00,000 by years of service
| Years of service | Gratuity | Taxable part |
|---|---|---|
| 5 | ₹2,88,462 | ₹0 |
| 10 | ₹5,76,923 | ₹0 |
| 15 | ₹8,65,385 | ₹0 |
| 20 | ₹11,53,846 | ₹0 |
| 25 | ₹14,42,308 | ₹0 |
| 30 | ₹17,30,769 | ₹0 |
Taxable part shown for private-sector employees covered by the Act, with ₹20 lakh tax-free over a career.
How this is worked out
Under the Payment of Gratuity Act, gratuity is last drawn salary × 15 ÷ 26 × years of service, where salary means basic pay plus dearness allowance. The 15 ÷ 26 is fifteen days' pay, taking a month as 26 working days.
So ₹1,00,000 × 15 ÷ 26 = ₹57,692 for each year, and 20 years gives ₹11,53,846. Gratuity is payable after five years of continuous service, or earlier on death or disablement; rules for fixed-term contracts can differ, so check your terms.
Gratuity is tax-free up to ₹20 lakh over your whole career for employees covered by the Act. Anything above that is added to your income and taxed at your slab rate in the year you receive it.
Frequently asked questions
Results are estimates for education and planning, not financial advice.
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