Gratuity Calculator
Use this gratuity calculator to compute your gratuity payout under the Payment of Gratuity Act, 1972. Enter your last drawn monthly salary (basic + dearness allowance) and your years of service — the calculator applies the official 15/26 formula and shows your total gratuity, the tax-free portion (up to ₹20 lakh under Section 10(10)), and the taxable portion (if any).
This gratuity calculator for private employees works for anyone who has completed at least 5 years of continuous service with the same employer — except in cases of death or disablement, where the 5-year minimum is waived. Government employees also fall under the Act with similar rules but a higher tax-free ceiling. Enter exact months of service for accurate computation, since periods over 6 months count as a full year in the formula.
How this calculator works
What is gratuity?
Gratuity is a lumpsum payment that an employer makes to an employee in recognition of long service, paid when the employee leaves the company — through retirement, resignation after 5+ years, death, disablement, or termination (except for misconduct). It is governed by the Payment of Gratuity Act, 1972, which applies to organisations with 10 or more employees.
Eligibility conditions
- 5 years of continuous service with the same employer is the standard minimum.
- Death or permanent disablement waives the 5-year requirement entirely — gratuity is paid even after 1 day of service.
- The employee must have left the company; gratuity is not paid while employment continues.
- Termination for proven misconduct (theft, fraud, riotous conduct) can disqualify the employee from receiving gratuity.
- Contract employees and consultants are typically not covered — only those on the company's payroll.
The Payment of Gratuity Act formula
For employees covered under the Act:
Gratuity = (Last drawn salary × 15 × Years of service) ÷ 26
Where: Last drawn salary = basic + dearness allowance (DA); 26 = working days in a month (excluding 4 Sundays); 15 = days of salary per year of service
Example: Last drawn salary ₹50,000, 12 years of service. Gratuity = (50,000 × 15 × 12) ÷ 26 = ₹3,46,154.
The 6-month rounding rule
If your service includes a fractional year, the rule rounds to the nearest full year:
- Service of less than 6 months in the final year is dropped (8 years 4 months counts as 8 years)
- Service of 6 months or more rounds up (8 years 7 months counts as 9 years)
This rule can swing your gratuity by tens of thousands. If you're close to a 6-month boundary, it may be worth waiting a few weeks before resigning.
For employees NOT covered under the Act
Some employers (with fewer than 10 employees, or non-statutory categories) provide gratuity outside the Act. The formula differs:
Gratuity = (Last drawn salary × 15 × Years of service) ÷ 30
The denominator changes from 26 to 30 days, reducing the per-year accrual. Most modern Indian private sector employers, however, are covered under the Act and use the 26-day formula.
Tax exemption under Section 10(10)
Gratuity is tax-exempt up to specific ceilings — the lower of three values:
- ₹20 lakh — the absolute statutory cap (raised from ₹10 lakh by the Payment of Gratuity (Amendment) Act, 2018)
- Actual gratuity received from the employer
- 15/26 × last drawn salary × years of service — the formula amount
Whichever is lowest is the tax-free portion. Anything above is taxable as Income from Salary at your slab rate. So if you receive ₹25 lakh gratuity but the formula computes ₹22 lakh, the tax-free portion is ₹20 lakh (the statutory cap), and ₹5 lakh is taxable. This applies under both old and new tax regimes.
Government employees
Central and state government employees, employees of defence forces, and employees of statutory bodies are covered under separate gratuity rules. Their entire gratuity is fully tax-exempt with no upper cap — a significant advantage over private-sector employees subject to the ₹20 lakh limit.
When is gratuity paid?
The Act mandates payment within 30 days of the gratuity becoming due (typically the date of separation). If the employer delays beyond 30 days, the employee is entitled to interest at the rate notified by the central government (currently around 7-9%) for the delay period.
Worked example
Example 1 — IT employee, ₹80,000 last drawn (basic + DA), 8 years service:
- Gratuity = (80,000 × 15 × 8) / 26 = ₹3,69,231
- Tax-free under Section 10(10): full amount (well below ₹20 lakh cap)
- Taxable portion: ₹0
- Net amount in hand: ₹3,69,231
Example 2 — Senior manager, ₹2,00,000 last drawn (basic + DA), 22 years service:
- Gratuity = (2,00,000 × 15 × 22) / 26 = ₹25,38,462
- Section 10(10) tax-free cap: ₹20,00,000 (statutory limit)
- Taxable portion: ₹5,38,462
- Tax at 30% slab (incl 4% cess): ₹5,38,462 × 0.312 = ₹1,67,000
- Net amount in hand: ₹23,71,462
Example 3 — Resignation just before 5-year mark:
- Service: 4 years 11 months
- Gratuity payable: ₹0 — does not meet the 5-year minimum eligibility
- Even with 4 years 11 months 28 days, gratuity is denied
- This is why many employees time their exit to clear the 5-year boundary by a few weeks
Frequently asked questions
Is 4 years 11 months eligible for gratuity?
Generally no, but a 1984 Madras High Court judgment held that completion of 240 days of work in the 5th year qualifies as continuous service for that year — making 4 years and 240 days (about 4 years 8 months) sometimes eligible. The interpretation varies by jurisdiction and employer policy. Most employers strictly enforce 5 full years. If you're close to the boundary, document your case and consult a labour lawyer if denied.
Is gratuity paid if I am terminated?
Yes, in most cases. Termination due to redundancy, restructuring, performance issues, or end of contract qualifies for gratuity if 5 years are completed. Gratuity is forfeited only in cases of <strong>proven misconduct</strong> — theft, fraud, riotous behaviour, willful damage to company property, or moral turpitude. The employer must give written notice and a hearing before forfeiting gratuity.
Does gratuity include performance bonus?
No. The Act defines salary for gratuity calculation as <strong>basic + dearness allowance</strong> only. HRA, conveyance allowance, special allowance, performance bonus, ex-gratia, overtime — none of these count. So an employee with ₹50,000 basic and ₹50,000 other allowances (₹1 lakh CTC) gets gratuity calculated only on the ₹50,000 basic figure.
What happens to gratuity if I die during service?
Your nominees receive the gratuity. The 5-year minimum is waived for death cases — even 1 day of service makes the family eligible. The amount is the formula calculation up to the date of death. Make sure to fill Form F (nomination form) when joining a company; without it, gratuity goes through legal heir certification, which delays disbursement by months.
Is gratuity from multiple employers added together for the ₹20 lakh exemption?
Yes. The ₹20 lakh tax-free ceiling is a <strong>lifetime cumulative limit</strong> across all employers. If you received ₹15 lakh tax-free gratuity from your first employer and ₹10 lakh from your second, only ₹5 lakh of the second is tax-free (₹20 lakh − ₹15 lakh already used). The remaining ₹5 lakh is taxable. Keep records of past gratuity for accurate tax filing.
Can my employer pay more than the formula amount?
Yes. The Act sets a minimum gratuity, not a maximum. Many employers pay enhanced gratuity — using a higher denominator (e.g., 1 month's salary per year instead of 15/26 days) or extending the calculation beyond 26 days. The amount above the formula is fully taxable, with no exemption under Section 10(10).
How do I calculate gratuity for fractional years?
The 6-month rule applies to the final partial year only — completed full years count exactly. For example, 7 years 5 months counts as 7 years (round down); 7 years 6 months counts as 8 years (round up); 7 years 7 months counts as 8 years; 7 years 11 months counts as 8 years. Earlier years are always counted in full — no proportional weighting for them.
Do I have to file ITR for gratuity?
Yes, if you receive gratuity, you must report it in your ITR even if it's fully tax-free. Form 16 from your employer will show the gratuity amount and any TDS deducted on the taxable portion. Use ITR-1 (if your only income is salary, pension, one house property, and other sources) or ITR-2 (if you have capital gains or multiple properties). Filing is required whether or not any tax is owed.
Is gratuity available to government employees?
Yes. Central, state and PSU employees receive gratuity under separate rules — generally the Central Civil Services (Pension) Rules. Their gratuity is <strong>fully tax-exempt with no upper limit</strong> (unlike the ₹20 lakh cap for private employees), and the formula often uses a higher per-year accrual. This is one of the major financial benefits of government service.
What is the difference between gratuity and pension?
Gratuity is a one-time lumpsum paid at separation. Pension is a recurring monthly payment after retirement. Most private-sector employees in India only receive gratuity (not pension, unless they were under the now-discontinued EPS for which contributions stopped in 2014). Government employees and a few PSU employees receive both. The two are independent — receiving one doesn't reduce the other.