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Calculate India gratuity payout under the Payment of Gratuity Act 1972 (covered and non-covered employers) and estimate USA severance pay. Includes eligibility checks, tax-free limits, and pro-rated service calculations.
Gratuity in India is a statutory payout tied to years of service. US severance is contractual and varies wildly. Knowing your number before resigning, retiring, or accepting a layoff helps you negotiate better and plan post-employment cash flow.
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The Payment of Gratuity Act 1972 mandates a gratuity payout for employees who complete 5 or more years of continuous service in establishments with 10 or more employees. The eligibility relaxation applies in case of death or disability, where the 5-year rule is waived.
For covered employers, the formula is (Last Drawn Salary × 15 × Years of Service) / 26, where 15 represents 15 days' wages and 26 represents the average number of working days in a month. Last drawn salary includes basic pay and dearness allowance.
If you have worked beyond 6 months in the final partial year, that year counts as a complete year for calculation. So 8 years 6 months is treated as 9 years; 8 years 5 months is treated as 8 years.
Gratuity received from a Gratuity Act-covered employer is exempt from income tax up to ₹20,00,000 (₹20 lakh) cumulative across all employers in your career. Anything above is added to taxable income in the year of receipt and taxed at slab rate.
Government employees enjoy unlimited tax-free gratuity. For non-covered private employers, the exemption is capped at the lower of (i) ₹20 lakh, (ii) actual gratuity received, or (iii) half-month salary × completed years (not 15/26).
Strategic tip: if a job change is voluntary and gratuity will exceed the ₹20 lakh limit eventually, structuring resignation timing or splitting receipt across financial years can sometimes optimize tax outcomes — consult a CA before deciding.
Severance pay is not federally mandated in the USA. It is determined by an employment contract, company policy, or a separation/release agreement signed at the time of layoff. Common formulas range from 1 to 4 weeks of pay per year of service, with senior roles often negotiating more.
Severance is taxed as ordinary income — federal income tax, Social Security, Medicare, and any applicable state tax all apply. Lump sum payments may push you into a higher withholding bracket temporarily; quarterly estimated payments may be needed if owed amounts exceed withholding.
Health insurance (COBRA) typically continues for 18 months but at full premium. Some severance packages include subsidized COBRA for a few months — this is worth quantifying because monthly premiums for family coverage can exceed $1,500.