Income Tax Calculator for FY 2025-26
14 Jun, 2025
By Online Legal India
Published On 11 Jun 2025
Category Other
A Gratuity Calculator is a simple tool that helps employees in India estimate the amount they are eligible to receive under the Payment of Gratuity Act, 1972. It provides accurate and instant results based on salary and years of service, which makes financial planning easier. In this blog, you will learn everything about how to use a gratuity calculator.
Gratuity is a lump sum payment given by an employer to an employee as a gesture of thanks for long-term service. In India, it is governed by the Payment of Gratuity Act, 1972, and is given when an employee completes at least 5 years of continuous service with a company. It is commonly paid during retirement, resignation, or in case of death or disability.
Under the Payment of Gratuity Act, 1972, any employee working in an organisation with 10 or more employees becomes eligible for gratuity after completing at least 5 years of continuous service. This includes people working in factories, shops, schools, or private companies. The 5-year condition does not apply if the employee’s service ends due to death or disability. In such cases, gratuity is paid even if the service period is less than 5 years. It is usually paid when an employee retires, resigns, or is terminated. The amount is calculated based on the employee’s last drawn salary and total years of service.
Calculating gratuity manually can be confusing, especially with varying salary structures and service durations. That is where a Gratuity Calculator comes in, and makes the process fast, simple, and accurate. Here is how you can use it:
The formula used to calculate gratuity under the Payment of Gratuity Act, 1972 is:
Gratuity = (15 × Last Drawn Salary × Number of Years of Service) ÷ 26
Here:
For Example:
If your last drawn basic salary + DA is Rs. 30,000 and you worked for 10 years, the gratuity would be: (15 × 30,000 × 10) ÷ 26 = Rs. 1,73,077 (approx.)
Here are the benefits of having gratuity:
The following details include tax rules on gratuity:
Fully Exempted from Tax: Government employees (central, state, defence, local bodies) enjoy full tax exemption on gratuity, no matter the amount paid.
Tax Exemption for Private-Sector Employees
Covered under the Payment of Gratuity Act, 1972:
If gratuity exceeds Rs. 20 lakh, the extra amount is taxed as part of your salary income.
Cases Before 5 Years of Service: If gratuity is received due to death or disability, the usual 5-year condition doesn’t apply, and tax exemption rules remain the same.
Payments During Active Employment: If gratuity is paid while still employed (not at resignation or retirement), it is fully taxable as salary income.
Tax Filing & Calculation for Retirees: The Income Tax Department’s 2025 brochure confirms that gratuity up to Rs. 20 lakh remains tax-exempt, and categorises it correctly under retirement earnings.
There are various options for investing the gratuity amount, and they are mentioned as follows:
Fixed Deposits are low-risk investments where you deposit a lump sum in a bank or post office for a fixed period. They offer guaranteed returns, which makes them ideal for conservative investors. Senior citizens often enjoy higher interest rates. FDs ensure capital protection and are best for short-term or medium-term goals.
PPF is a government-backed long-term investment scheme with a 15-year lock-in. It offers attractive, tax-free interest and tax deductions under Section 80C of the Income Tax Act. PPF is ideal for retirement planning, which ensures wealth accumulation with complete safety and compound interest benefits. You can invest annually up to Rs. 1.5 lakh.
EPF is a retirement savings scheme where both the employer and the employee contribute monthly. If you are changing jobs, you can transfer your gratuity to your EPF account for continued savings. It provides tax benefits, guaranteed returns, and long-term wealth building, which makes it a smart choice for secure retirement planning.
NPS is a voluntary pension scheme regulated by the PFRDA. It allows investment in both equity and debt instruments, which offers diversification and higher long-term returns. Contributions are eligible for tax deductions under Sections 80C and 80CCD(1B). It is suitable for those seeking structured retirement income with some market exposure.
Equity mutual funds invest primarily in stock markets and aim for high returns over the long term. They are ideal for investors with a high-risk appetite and a long investment horizon. You can start with SIPs, making it flexible and disciplined. Though returns vary, equity funds historically beat inflation and FDs.
Debt mutual funds invest in fixed-income securities like corporate bonds, treasury bills, and government securities. They are safer than equity funds and offer stable returns. These funds suit investors seeking regular income with lower risk. They also have better tax efficiency if held for more than three years (LTCG benefits).
SGBs are RBI-issued bonds that offer exposure to gold in a non-physical form. They provide 2.5% annual interest (taxable) and capital gains exemption if held till maturity (8 years). Ideal for gold investors seeking safety and tax benefits, SGBs also eliminate storage risks associated with physical gold.
Investing in property offers long-term capital appreciation but involves high initial investment, maintenance costs, and low liquidity. Alternatively, REITs (Real Estate Investment Trusts) allow smaller investments in commercial real estate and provide steady income through dividends. Ideal for diversifying with real estate exposure minus the hassle of ownership.
Stocks offer the potential for high returns but come with market volatility and require financial knowledge. Investing directly in shares is suitable for investors with a high-risk appetite and the ability to track markets. Returns are not guaranteed, but the right choices can significantly grow your gratuity over time.
RDs allow you to invest a fixed amount monthly with banks or post offices. They are safe and help build disciplined savings. Interest is compounded quarterly and fully taxable. RDs are suitable for individuals who want to gradually grow their gratuity over a fixed period without taking market risks.
The details below include some of the recent updates in gratuity rules:
Judgments from the Madras and Delhi High Courts confirm that employees working 4 years and 240 days (4 years, 8 months) may qualify for gratuity if they leave before 5 years. However, Karnataka courts differ, so local policies may vary. Eligibility still remains automatic in cases of death or disability.
From January 1, 2024, central and defence government workers are receiving tax-free gratuity up to Rs. 25 lakh, an increase from Rs. 20 lakh. This aligns with the 7th Pay Commission’s policy of raising the ceiling when DA hits 50 percent.
The CCS (Payment of Gratuity under NPS) Amendment Rules, 2025, came into effect in April 2025. Now, “gratuity” clearly includes retirement, death, and residuary components. New provisions allow portability between state and central service, grace in case of missing employees, and stringent duties and timelines for administrative officers, including interest on delayed payments.
From January 10, 2024, Karnataka law requires employers (with 10+ staff) to secure gratuity payments via LIC or approved insurers or maintain an approved gratuity trust. Existing firms had 60 days to comply; new ones get 30 days. An HC interim order in April 2025 paused coercive action during legal proceedings.
Gratuity is more than a post-job benefit, it is a legal right, a financial cushion, and a reward for dedication. With updated rules, tax benefits, and smart investment options, it empowers employees to secure their future. Using a gratuity calculator ensures accuracy, while staying informed helps protect your rights. In this blog, you have learned how to use a gratuity calculator.
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