Does a company that drops below 10 employees stop being covered by the Gratuity Act?

No. Under Section 1(3A) of the Payment of Gratuity Act, once an establishment reaches 10 or more employees on any single day, the Act continues to apply permanently even if headcount later falls below 10.

Is Special Allowance or HRA included when calculating gratuity?

Under the Payment of Gratuity Act, 1972, wages include only Basic Salary and Dearness Allowance (DA), excluding HRA, bonus, commission, and overtime.

What if an employer pays more gratuity than the statutory 15/26 formula?

Section 4(5) protects an employee right to receive better terms of gratuity under an employment contract. However, for income tax exemption under Section 10(10), the exempt amount is still capped at the lowest of actual gratuity received, the statutory 15/26 amount, and ₹20,00,000.

How does the 6-month rounding rule treat exactly 5 years and 6 months?

Section 4(2) states "in excess of six months." Therefore, 5 years and 6 months stays at 5 years, whereas 5 years, 6 months, and 1 day rounds up to 6 years.

Calculate Gratuity: 15/26 Formula & ₹20L Tax Cap

Covered (15/26) vs Non-Covered (15/30) formulas compared

Every file format and statutory compliance rule has a deterministic structure underneath the user interface. When teams rely on manual spreadsheet edits or generic cloud converters, subtle structural details get lost: page coordinate boxes reset, check digits go unverified, or rounding rules drift by several hundred rupees across a financial year. Understanding the exact specification behind Gratuity Calculator lets you verify every output before it enters an audit file or government portal.

The reference table below summarizes the core technical and statutory parameters enforced by the local engine:

Parameter / Rule	Specification / Formula	Practical Audit Impact
Covered Establishments (≥10 staff)	`Gratuity = (Last Drawn Basic + DA) × (15 / 26) × Rounded Years`	Any service fraction > 6 months in final year rounds up to +1 year
Non-Covered Establishments	`Gratuity = (10-Month Avg Basic + DA) × (15 / 30) × Completed Years`	Fractions of a year are ignored (completed years only)
Tax-Free Ceiling u/s 10(10)	`₹20,00,000 cumulative lifetime ceiling across all employers`	100% exempt without limit for Central/State Govt employees
Minimum Vesting Tenure	`5 years continuous service (waived on death or disablement)`	Courts recognize 4 years + 240 working days (190 in 5-day week) in covered cases

Because each rule above is evaluated directly in your browser tab using typed JavaScript arrays and WebAssembly workers, there is no server queue, no file-count cap, and zero external data retention. Every byte of the source document or ledger table is parsed inside volatile browser memory and released as soon as the tab closes.

How the >6 months tenure rounding rule works

Running this workflow in Gratuity Calculator (Covered & Non-Covered) takes four deterministic steps from raw input to verified output:

Open Gratuity Calculator and select Covered under the Payment of Gratuity Act (15/26) or Non-Covered (15/30).
Enter Last Drawn Basic Salary plus Dearness Allowance (DA), excluding HRA and special allowances.
Enter exact years and months of continuous service (and any actual gratuity paid by the employer if higher than statutory).
Review the statutory gratuity payable, rounded service years, tax-exempt amount under Section 10(10), and any taxable excess.

Note: All inputs, uploaded files, and intermediate calculations remain in volatile browser RAM. Closing or refreshing the tab clears the memory buffer immediately.

When you process recurring monthly batches, keeping the input schema consistent across runs ensures that downstream checks in related guides such as calculate epf eps and esi payroll deductions, calculate statutory bonus under payment of bonus act, calculate hra tax exemption under section 10 13a match to the exact rupee or byte. Before starting a large batch, verify that your source file is not locked by an unknown password and that column headers or page indices match the expected range.

Step-by-step: computing gratuity and tax exemption in ShiftTools

Settlement for 7 Years, 8 Months of Service at ₹84,500 (Basic + DA)

An employee leaves a covered IT company after 7 years and 8 months of service with a last drawn Basic + DA of ₹84,500/month. Because 8 months exceeds 6 months, Covered tenure rounds up from 7y 8m to 8 full years. Statutory Gratuity = ₹84,500 × (15 ÷ 26) × 8 = ₹48,750 × 8 = ₹3,90,000. Had the HR team mistakenly used a 30-day divisor and 7 completed years, they would have calculated ₹84,500 × 0.5 × 7 = ₹2,95,750, shortchanging the employee by ₹94,250. Since ₹3,90,000 is below the ₹20,00,000 Section 10(10) cap, 100% of the payout is tax-exempt.

TEXT

Covered Act Calculation:
  Last Drawn (Basic + DA): ₹84,500
  Actual Tenure:           7 years, 8 months -> Rounded to 8 years (> 6 mos)
  15-Day Wage (× 15/26):   ₹84,500 × 15 ÷ 26 = ₹48,750.00 per year
  Total Gratuity Payable:  ₹48,750.00 × 8    = ₹3,90,000.00
  Tax-Exempt u/s 10(10):   ₹3,90,000.00 (Within ₹20,00,000 lifetime cap)

You can reproduce this exact calculation at any time by pasting the sample values above into Gratuity Calculator and comparing the generated summary row against your internal workpaper. Recording the input parameters alongside the output file creates a self-contained audit trail for statutory or peer review.

Worked example: 7 years and 8 months of service at ₹84,500 Basic + DA

In production accounting and document engineering workflows, edge cases appear when inputs combine multiple conventions in a single batch. For example, a merged PDF bundle may mix portrait A4 text pages (/MediaBox 595.28 × 841.89 pt) with wide environment annexures, or a quarterly ledger export may combine April-to-September transactions with October-to-March entries after a mid-year threshold revision.

To prevent silent errors across those boundaries, always inspect the per-item diagnostic status before exporting the final file:

Verify unit consistency: Confirm whether input figures represent monthly vs annual amounts, GST-exclusive vs GST-inclusive values, or 1-based physical page indices vs printed document numbers.
Check boundary conditions: Pay close attention to exact threshold cutoffs, leap-year day counts, and page rotation multiples (0, 90, 180, 270 degrees) where off-by-one errors commonly occur in manual spreadsheets.
Preserve audit trails: Save the exported summary CSV or processed PDF alongside the raw source file so any reviewer can trace the transformation step by step without re-keying data.
Cross-check neighbour utilities: Pair Gratuity Calculator with companion tools in the Accounting & Finance suite (calculate epf eps and esi payroll deductions, calculate statutory bonus under payment of bonus act, calculate hra tax exemption under section 10 13a) when a task spans multiple stages.

Section 10(10) ₹20,00,000 lifetime exemption ceiling and 5-year rule

The ₹20,00,000 tax-free limit under Section 10(10) is an aggregate lifetime cap across all employers in an individual's career, not a fresh ₹20,00,000 per job switch. If an employee already claimed ₹6,00,000 exempt gratuity from a previous employer, their remaining lifetime tax-free ceiling is ₹14,00,000.

Limit: Client-side browser execution verifies mathematical formulas, statutory rules, and binary file structures offline. Where a regulation requires live portal authentication (such as checking active GST registration status on the GSTN portal or verifying operative PAN-Aadhaar linkage on TRACES), perform that portal check alongside your local calculation.

By separating deterministic local computation from external portal lookups, your team eliminates manual formatting and calculation errors while keeping sensitive client files off third-party cloud servers.