How to Calculate Taxable Portion of Gratuity

Aug 10, 2018 | 3 months ago | Read Time: 1 minute | By iKnowledge Team

Spent more than five years in a company? Now, you have one more income that you need to calculate tax on — gratuity.

When it comes to categorisation for gratuity, following three are the different types of employees with their taxable portion of gratuity—

Government employees:

Completely exempt from tax on gratuity

Employee working for employer covered by the Payment of Gratuity Act

Pay the least of either of the following:

  1. 15 days’ of last-drawn salary × Number of years worked* × Last drawn salary
  2. Rs 10 lakh
  3. Entire gratuity

*The number of years is rounded off to the nearest number. Thus, 12 years and 5 months is considered to be 12 years, while 12 years 7 months is considered to be 13 years.

Employee working for employer not covered by the Payment of Gratuity Act

  1. 15 days’ salary (from the last drawn) × Number of years worked* × Last drawn salary
  2. Rs 10 lakh
  3. Entire Gratuity

*The number of years not completed are discarded. So, 12 years and 5 months is considered to be 12 years. Even 12 years and 11 months is considered to be 12 years.

Visit our website for tax calculators and other tools that could help you plan your retirement. You could visit us to buy a life insurance plan from Aegon Life.

Advt. no.: IA/Jul 2018/4272


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