How much gratuity is tax-free on retirement?

For government employees, gratuity is fully exempt. For private employees covered by the Payment of Gratuity Act, the exemption is the least of the amount received, ₹20 lakh, and 15/26 × last drawn salary (basic + DA) × years of service, where a fraction over six months rounds up to a full year. If the employer is not covered by the Act, the third limb becomes half the average monthly salary × completed years of service.

Is leave encashment on retirement taxable?

Leave encashment on retirement is fully exempt for government employees. For other employees, the exemption is the least of: the amount received, ₹25 lakh, 10 months' average salary (basic + DA), and the cash equivalent of unutilised earned leave calculated at a maximum of 30 days per completed year of service. Any excess is taxable as salary.

How is commuted pension taxed?

A commuted (lump sum) pension is fully exempt for government employees. For others, one-third of the full value of the pension is exempt if gratuity was also received, and one-half if it was not. The uncommuted monthly pension is taxable as salary income in all cases.

Are EPF and NPS withdrawals at retirement tax-free?

An EPF balance withdrawn after five years of continuous service is exempt. Withdrawals before five years are taxable (the exact treatment splits by contribution and interest components). For NPS, the lump sum withdrawn at retirement is exempt up to 60% of the corpus; the balance must generally be used to purchase an annuity, whose pension payouts are taxable. Startup Advisory in Saket, Delhi NCR can plan the tax-efficient sequencing of your retirement receipts.

Retirement Benefits Tax Calculator | Gratuity, Leave Encashment, Pension

How much of your retirement money is taxable?

Enter each amount you received on retirement — gratuity, leave encashment, commuted pension, VRS compensation, EPF and NPS — and see the exempt and taxable portion of each, plus an estimated tax liability for the year.

Your employment

Type of employer

Most establishments with 10+ employees are covered by the Payment of Gratuity Act. Government employees get full exemption on gratuity, leave encashment and commuted pension.

Completed years of service

+ months (beyond completed years)

Gratuity Sec 10(10)

Gratuity received

Last drawn monthly salary (basic + DA)

Leave encashment Sec 10(10AA)

Leave encashment received

Average monthly salary (basic + DA, last 10 months)

Earned leave balance at retirement (days)

Commuted pension Sec 10(10A)

Lump sum received on commutation

% of pension commuted

Voluntary retirement (VRS) Sec 10(10C)

VRS compensation received

Provident fund & NPS

EPF balance withdrawn

Continuous service 5 years or more?

NPS lump sum withdrawn

Within 60% of NPS corpus?

Other income this year

Salary + uncommuted pension for the year

Interest & other income

Estimated tax payable (new regime, FY 2026-27) ₹0

Retirement receipt	Received	Exempt	Taxable

Plan your retirement taxes with us

How each exemption works. Gratuity: fully exempt for government employees. For private employees covered by the Payment of Gratuity Act, the exemption is the least of the amount received, ₹20,00,000, and 15/26 × last drawn salary × years of service (a fraction over 6 months rounds up to a full year). If not covered: least of the amount received, ₹20,00,000, and half the average monthly salary × completed years. Leave encashment: fully exempt for government employees. Otherwise, least of the amount received, ₹25,00,000, 10 months' average salary, and the cash equivalent of unutilised earned leave (capped at 30 days per year of service). Commuted pension: fully exempt for government employees. Otherwise, one-third of the full pension value is exempt if you also received gratuity, one-half if you did not. VRS: up to ₹5,00,000, once in a lifetime; you cannot claim both this exemption and Section 89 relief on the same amount. EPF: exempt after 5 years of continuous service (this tool treats an early withdrawal as fully taxable — the actual treatment splits by contribution component and can differ). NPS: the lump sum at retirement is exempt up to 60% of the corpus. Taxable amounts are added to your other income and taxed at new-regime slab rates with the Section 87A rebate, surcharge (marginal relief not modelled) and 4% cess. Section references are to the Income-tax Act, 1961 as commonly cited. This is an estimate, not tax advice — retirement taxation has many special cases.

Retiring soon? Get the sequencing right.

The order and timing of your retirement receipts can change the tax outcome — commutation choices, VRS vs superannuation, and EPF/NPS withdrawal timing all interact. Our Chartered Accountants in Saket, New Delhi can plan it before the money moves. See ITR & Tax Advisory, compare regimes with the Income Tax Calculator, check your Gratuity Calculator amount, or book a free consultation.

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