Gratuity: Act vs Non-Act
Gratuity: covered by the Act vs not covered
How gratuity is calculated depends on whether your employer is covered by the Payment of Gratuity Act, 1972. Most establishments with 10+ employees are covered. The calculator above shows both methods so you can compare.
The two formulas
Covered employees use 26 days and round the final year up (over 6 months counts as a year). Not-covered employees use 30 days, only completed years count, and salary is the average of the last 10 months' basic + DA.
Side-by-side example
| Covered | Not covered | |
|---|---|---|
| Salary, 10 years | ₹40,000 | ₹40,000 |
| Divisor | 26 | 30 |
| Gratuity | ₹2,30,769 | ₹2,00,000 |
The Act formula usually pays more because of the 26-day divisor and rounding.
Tax exemption
- Covered: least of actual, ₹20 lakh, or the 15/26 formula amount.
- Not covered: least of actual, ₹20 lakh, or half-month average salary for each completed year.
- Government employees: fully exempt either way.
Frequently asked questions
How do I know if my employer is covered?
Most establishments with 10+ employees in the preceding 12 months are covered. Check your offer letter or HR.
Which gives more?
Usually the Act formula, due to the 26-day divisor and rounding up the final year.
What salary is used if not covered?
The average of the last 10 months' basic + DA (and commission as a fixed % of turnover, if any).
Is the ₹20 lakh limit the same?
Yes for both; only the third exemption comparison differs.
Do part-years count?
Covered: over 6 months rounds up. Not covered: only completed years count.
Source: Payment of Gratuity Act, 1972, and Income-Tax Act Section 10(10). Confirm with your employer. ComplyKraft is independent; this is not professional advice.