To calculate the tax-exempt gratuity amount, the law divides non-government employees into two categories: those who are covered under the Payment of Gratuity Act, 1972, and those who are not covered under the Act.

Gratuity is a part of salary that is received by an employee from his/her employer in gratitude for the services offered by the employee in the company. Gratuity is a defined benefit plan and is one of the many retirement benefits offered by the employer to the employee upon leaving his/her job.