Gratuity Calculator

What is gratuity and how does this gratuity calculator work?

Gratuity is a lump sum an employer pays an employee as a reward for long service, when the employee leaves after at least five years of continuous service, retires, or on death or disablement. In India it is governed by the Payment of Gratuity Act, 1972, which applies to factories, mines, plantations, ports, railway companies, and shops or establishments that employ 10 or more people. This gratuity calculator applies the statutory formula, rounds your service the way the Act does, checks the five-year rule, applies the ₹20 lakh ceiling and splits the amount into the tax-exempt and taxable parts under Section 10(10) of the Income-tax Act for FY 2025-26.

How to use the gratuity calculator

1. Choose whether your employer is covered by the Payment of Gratuity Act. Most companies with 10 or more employees are.
2. Choose the employee type — government employees get a full tax exemption, everyone else gets a capped exemption.
3. Enter your monthly Basic + DA — the last drawn amount if covered, or the average of the last 10 months if not covered. Do not include HRA, bonus, overtime or other allowances.
4. Enter your service as completed years plus extra months, and the reason for leaving.
5. Optionally enter the amount actually received (if your employer pays more than the formula) and any gratuity exemption you claimed from a previous employer, to get the correct taxable figure.

Gratuity formula under the Payment of Gratuity Act

For covered employees: Gratuity = last drawn (Basic + DA) × 15 / 26 × years of service.

• 15/26 = 15 days’ wages for each year, treating a month as 26 working days.
• Service rounding: Section 4(2) counts every completed year “or part thereof in excess of six months”. So 10 years 7 months counts as 11 years, but 10 years 6 months counts as 10 years.
• Eligibility: at least 5 years of continuous service, except on death or disablement, where the condition does not apply.
• Ceiling: gratuity payable under the Act is capped at ₹20 lakh (in force since 29 March 2018). An employer may pay more under its own scheme or contract.

For employees not covered by the Act: the Income-tax Act uses 15 / 30 × average monthly Basic + DA of the last 10 months × completed years of service (fractions of a year are ignored). Whether you are paid at all, and how much, depends on your employer’s gratuity policy.

Worked examples

• Covered, 10 years 7 months, Basic + DA ₹50,000: service counts as 11 years. Gratuity = 50,000 × 15/26 × 11 = ₹3,17,308. All of it is tax-exempt because it is below both the formula amount and ₹20 lakh.
• Same person, not covered: 50,000 × 15/30 × 10 = ₹2,50,000. Only completed years count.
• Covered, 30 years, Basic + DA ₹2,50,000: the formula gives ₹43,26,923, but the amount payable under the Act is capped at ₹20,00,000, all of which is exempt if you have not claimed a gratuity exemption before.
• Employer pays more: if the same 30-year employee actually receives ₹25,00,000, then ₹20,00,000 is exempt and ₹5,00,000 is taxable as salary.
• Covered, 4 years 8 months, resignation: not eligible, because continuous service is under 5 years. If the reason is death or disablement, the gratuity is payable: service counts as 5 years.

Gratuity as a percentage of salary (gratuity percentage calculator)

Under the 15/26 formula, each year of service earns 15/26 of one month’s Basic + DA, which is 0.577 of a month’s pay. Spread over the 12 months of that year, it equals 15 ÷ 26 ÷ 12 = 4.81% of annual Basic + DA for every year of service. That is why many employers show gratuity in the CTC as about 4.81% of basic salary. For employees not covered by the Act, the 15/30 formula works out to 15 ÷ 30 ÷ 12 = 4.17% of annual Basic + DA per completed year.

Total gratuity by years of service under the Act (before the ₹20 lakh cap), with the amount for last drawn Basic + DA of ₹50,000 a month:

To use the percentage directly: gratuity ≈ 4.81% × annual Basic + DA (at the last drawn rate) × years of service. Because the formula uses your last drawn salary, the gratuity you finally receive is usually more than the 4.81% your employer shows each year in the CTC.

Tax on gratuity in FY 2025-26

Government employees (Central, State and local authority) — gratuity is fully exempt under Section 10(10)(i). For Central Government employees, the gratuity ceiling under their own service rules was raised from ₹20 lakh to ₹25 lakh with effect from 1 January 2024, when DA reached 50%; that change applies to those rules, not to the Payment of Gratuity Act.

Everyone else — the exempt amount is the lowest of (a) the gratuity actually received, (b) the formula amount (15/26 rule if covered, 15/30 rule if not) and (c) ₹20 lakh. The ₹20 lakh is a lifetime limit under Section 10(10)(iii), so exemptions claimed from earlier employers reduce it. Anything above the exempt amount is taxed as salary at your slab rate, under either tax regime.

Tips

• Check that your employer nominated you correctly (Form F) so that gratuity reaches your family without delay in case of death.
• The employer must pay gratuity within 30 days of it becoming payable; delayed payment attracts simple interest under the Act.
• If you switch jobs just before completing 5 years, you may lose gratuity for that employment entirely — check your dates.
• If part of your gratuity is taxable, relief under Section 89 (Rule 21A) may reduce the tax in some cases — ask your tax adviser.
• Gratuity is based only on Basic + DA, so a salary structure with a low basic pay means a lower gratuity.

Limitations and notes

This calculator covers monthly-paid employees. Seasonal establishments (7 days’ wages per season) and piece-rated workers (average of the last three months) follow different wage rules. The Code on Social Security, 2020 — brought into force along with the other labour codes in November 2025 — keeps the 15-days-per-year formula and adds gratuity eligibility for fixed-term employees after one year; check the latest notified rules and your employer’s policy before relying on any figure. Results are estimates, not legal or tax advice.

Frequently Asked Questions

What is the formula for gratuity?

For employees covered by the Payment of Gratuity Act, 1972: gratuity = last drawn monthly Basic + DA x 15/26 x years of service, where a part year of more than six months counts as a full year. For employees not covered, the tax formula is average monthly Basic + DA of the last 10 months x 15/30 x completed years.

How much gratuity will I get for 10 years 7 months on ₹50,000 Basic + DA?

Service counts as 11 years because the 7 extra months exceed six months. Gratuity = 50,000 x 15/26 x 11 = ₹3,17,308 under the Payment of Gratuity Act.

Is gratuity payable before 5 years of service?

Not on resignation or retirement under the Payment of Gratuity Act, which requires at least 5 years of continuous service. The 5-year condition does not apply on death or disablement.

How much gratuity is tax-free?

For government employees, all of it. For others, the exempt amount is the lowest of the gratuity received, the formula amount and ₹20 lakh, where ₹20 lakh is a lifetime limit under Section 10(10). The rest is taxed as salary.

What is the maximum gratuity limit?

Gratuity payable under the Payment of Gratuity Act is capped at ₹20 lakh, and ₹20 lakh is also the income-tax exemption limit for non-government employees. Central Government employees have a separate ceiling of ₹25 lakh under their service rules from 1 January 2024, and their gratuity is fully tax-exempt.

Does 4 years 6 months count as 5 years for gratuity?

No. The rounding rule (part of a year above six months counts as a full year) applies to calculating the amount, while eligibility on resignation needs 5 years of continuous service. Exactly six extra months is also not rounded up, because the Act requires more than six months.

What percentage of salary is gratuity?

Under the Payment of Gratuity Act it is 15/26 of a month’s Basic + DA per year of service, which equals 4.81% of annual Basic + DA for every year worked (15 divided by 26 divided by 12). For employees not covered by the Act, the tax formula equals 4.17% per completed year.

Why is gratuity 4.81% of basic salary in my CTC?

Employers spread the yearly gratuity liability, 15/26 of a month’s Basic + DA, over 12 months, which is 4.81% of basic. It is paid only when you leave after 5 years (or earlier on death or disablement), and the final amount is calculated on your last drawn salary.

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