Gratuity: Calculation and Tax#
What is Gratuity?#
Gratuity is a lump sum payment by employer to employee for services rendered.
Eligibility#
- 5 years of continuous service
- Retirement, resignation, death
Calculation Formula#
Gratuity = (15 × Last drawn salary × Years of service) / 26
Tax Exemption#
- Under Payment of Gratuity Act: Fully exempt
- Non-covered: ₹10 lakh exempt
Tax Treatment#
| Amount | Tax |
|---|---|
| Up to ₹10 lakh | Exempt |
| Above ₹10 lakh | Taxable |
Conclusion#
Gratuity provides financial security to employees.