Section 10(10) Gratuity Rules & Limits (2026)
Gratuity is a monetary benefit provided by employers to employees for completing 5 or more years of continuous service under the Payment of Gratuity Act 1972.
| Category | Statutory Formula | Tax Exemption Ceiling |
|---|---|---|
| Covered under Gratuity Act 1972 | (15 / 26) * (Basic + DA) * Years | ₹20,00,000 (₹20 Lakhs) |
| Not Covered under Gratuity Act | (1 / 2) * (10-Mo Avg Salary) * Years | ₹20,00,000 (₹20 Lakhs) |
| Government Employees | Service Pay Rules | 100% Tax-Free (No Limit) |
Section 10(10) Gratuity Exemption Rules (2026)
- 15/26 Formula (Covered Employees): Exempt Gratuity = (15 * Last Drawn Basic+DA * Tenure Years) / 26.
- Statutory Ceiling Cap: Maximum lifetime tax-exempt gratuity limit is ₹20,00,000 (₹20 Lakhs) for non-government private employees.
- Government Employees: Gratuity received by Central/State government employees is 100% tax-free without cap limits.
5-Year Continuous Service Requirement
- Eligibility Rule: Employee must complete 5 years of continuous service with the same employer (240 days worked per year).
- 6-Month Rounding Rule: Service over 6 months in the final year is rounded up to 1 full year (e.g. 5 yrs 7 months = 6 years).
Gratuity Tax Insight
The ₹20 Lakh statutory exemption cap is a lifetime limit across all employers combined throughout your career. Keep records of previous exemptions claimed!