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How much of your gratuity and leave encashment is tax-free when you leave a job, which limit decides it, and the tax it saves.
Up to ₹20,00,000 in a lifetime · government employees in full · both regimes
Fill in your details, then press Calculate to see the result.
When you leave a job, two lump sums often arrive with your final settlement: gratuity, a reward for long service, and leave encashment, pay for earned leave you didn’t take. Both count as salary, but each has its own tax-free limit, and both limits apply under the old and the new regime.
The calculator works out the tax-free part of each, shows which limit decided it, and estimates the tax the exemption saves.
Gratuity under the Gratuity Act (15/26 × last month’s basic + DA × years) for different salaries. Amounts marked * are above the ₹20 lakh tax-free limit:
| Years of service | Basic + DA ₹50,000 | Basic + DA ₹1 lakh | Basic + DA ₹1.5 lakh |
|---|---|---|---|
| 5 years | ₹1,44,231 | ₹2,88,462 | ₹4,32,692 |
| 10 years | ₹2,88,462 | ₹5,76,923 | ₹8,65,385 |
| 20 years | ₹5,76,923 | ₹11,53,846 | ₹17,30,769 |
| 25 years | ₹7,21,154 | ₹14,42,308 | ₹21,63,462* |
| 30 years | ₹8,65,385 | ₹17,30,769 | ₹25,96,154* |
Below the ₹20 lakh limit, the whole gratuity is tax-free for anyone covered by the Act. Leave encashment on leaving a job has its own ₹25 lakh limit, and this calculator works out both.
To see the tax on the rest of your salary in the year you leave, use the New Regime Tax Calculator or the Salary Tax Planner.
Gratuity and leave encashment together.
| Leaver | Received | Tax-free | Taxed as salary |
|---|---|---|---|
| Job switch after 7 years 8 months, Gratuity Act, ₹50k basic + DA, ₹2.5 lakh gratuity | ₹2,50,000 | ₹2,30,769 | ₹19,231 |
| Not covered by the Act, 12 years 9 months, ₹60k average, ₹4.5 lakh gratuity | ₹4,50,000 | ₹3,60,000 | ₹90,000 |
| Leaving after 30 years, ₹1.5 lakh basic + DA: ₹25 lakh gratuity, ₹15 lakh for 240 leave days | ₹40,00,000 | ₹32,00,000 | ₹8,00,000 |
| Government employee leaving service: ₹25 lakh gratuity, ₹20 lakh leave encashment | ₹45,00,000 | ₹45,00,000 | ₹0 |
The job switcher’s 8 months over 7 years count as a full year under the Gratuity Act. The employee not covered by the Act gets only completed years and half a month’s pay per year. The 30-year employee hits the ₹20 lakh gratuity cap, and their leave is limited by the 240 days at the average salary. The government employee pays no tax on either.
Under the Gratuity Act it is 15/26 × last month’s basic + DA × years of service:
A part-year of more than six months counts as a full year.
For private-sector employees, only above the least of the formula amount and the ₹20 lakh lifetime limit. It is the same in both regimes.
Government employees’ gratuity is fully tax-free.
Yes. The gratuity and leave encashment exemptions apply in both regimes. Unlike HRA or LTA, you don’t lose them by choosing the new regime.
From Tax Year 2026-27 these exemptions sit in section 19 of the new Act instead of sections 10(10) and 10(10AA). The limits and formulas are the same.
Gratuity received when you leave a job is tax-free up to a limit, and only the excess is taxed as salary. Government employees get all of it tax-free. Gratuity paid while you are still in the job is fully taxable.
If your employer is covered by the Payment of Gratuity Act, the least of: the gratuity received, ₹20 lakh, and 15/26 of your last month’s basic + DA × years of service (more than 6 months counts as a year). If it isn’t covered, the third limit is half your 10-month average basic + DA × completed years.
No. It is a lifetime limit. If an earlier employer’s gratuity was already tax-free, only what is left of the ₹20 lakh is available now. The same applies to the ₹25 lakh limit on leave encashment.
Under the Payment of Gratuity Act you generally need 5 years of continuous service to be paid gratuity (less on death or disability, and the Social Security Code allows fixed-term employees after 1 year). The tax rules apply to whatever gratuity you actually receive.
No. Gratuity paid to the nominee or legal heirs after the employee's death isn't taxed in their hands. The limits in this calculator apply to gratuity an employee receives on retirement or resignation.
The taxable part is added to that year’s salary. Because it was earned over many years, you can claim relief for salary bunched into one year (what used to be section 89 relief) by filing the relief form on the e-filing portal before your return. It recomputes the tax as if the amount had been spread over earlier years.
Leave encashment received when you leave a job is tax-free up to the least of: the amount received, ₹25 lakh, 10 months’ average salary, and your unused leave (at most 30 days for each completed year) at your average salary. The rest is taxed as salary.
Yes, fully, as part of that year’s salary, in both regimes. The exemption applies only to leave encashed when you leave the job, on retirement or resignation.
Your basic pay, plus DA if it counts for retirement benefits, plus any commission fixed as a percentage of turnover, averaged over the 10 months just before you leave. Allowances like HRA and special allowance are left out, which is why the tax-free amount is often lower than people expect.
Gratuity: a government employee’s is fully tax-free. Under the Payment of Gratuity Act it is the least of the amount, the ₹20 lakh lifetime limit left, and 15/26 × last month’s basic + DA × years of service (more than 6 months counts as a year). Not covered by the Act: half the 10-month average × completed years instead.
Leave encashment on leaving: a government employee’s is fully tax-free. Otherwise it is the least of the amount, the ₹25 lakh lifetime limit left, 10 months’ average salary, and the leave days (at most 30 for each completed year) × average salary ÷ 30.
What isn’t tax-free is added to your salary and taxed at your slab rate. The tax saved is the tax-free amount × your slab rate × 1.04 (cess).
Gratuity (Gratuity Act)
min(gratuity, ₹20L − earlier, 15/26 × last basic + DA × years)
Gratuity (not covered)
min(gratuity, ₹20L − earlier, ½ × 10-month average × completed years)
Leave encashment
min(amount, ₹25L − earlier, 10 × average, min(days, 30 × years) × average ÷ 30)
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