Gratuity Calculator
Calculate your gratuity amount using the standard Payment of Gratuity Act formula: (Basic + DA) × 15/26 × years of service. Check eligibility, the ₹20 lakh tax-free limit, and the rounding rule that can add a full year to your count.
Quick answer: Gratuity = last drawn (Basic + DA) × (15 ÷ 26) × completed years of service. On ₹40,000 Basic+DA with 8 years of service: 40,000 × 15/26 × 8 = ₹1,84,615. Eligibility needs 5 years of continuous service; 6+ months in the final year rounds up to a full year.
What Is Gratuity?
Gratuity is a statutory lump-sum reward for long service, paid by the employer when you leave after five or more years — on resignation, retirement, or termination (and without the 5-year condition in case of death or disability). Governed by the Payment of Gratuity Act, 1972, it applies to establishments with 10+ employees, and once covered, an employer stays covered. It is employer-funded: nothing is deducted from your salary, though CTC structures typically show a ~4.81% of basic provision (that's 15/26 ÷ 12 — the monthly cost of your accruing gratuity).
Gratuity Formula
Gratuity = Last Drawn (Basic + DA) × (15 ÷ 26) × Completed Years of Service
The 15/26 means 15 days of wages per year of service, with a month counted as 26 working days. Non-covered establishments commonly use 15/30 (half a month per year). Two critical details: the salary is your final Basic + DA (raises increase the whole history's value), and service of 6+ months in the last year rounds up — 7 years 7 months counts as 8.
Worked Examples
Example 1 — standard case. ₹40,000 Basic+DA, 7 years 7 months (→ 8 years): 40,000 × 15/26 × 8 = ₹1,84,615.
Example 2 — rounding down. Same salary, 7 years 5 months (→ 7 years): 40,000 × 15/26 × 7 = ₹1,61,538. Those two months of timing are worth ₹23,077 — if you're at 5 months in your final year, an extra month of service pays remarkably well.
Example 3 — non-covered employer. ₹40,000, 8 years, 15/30 formula: 40,000 × 0.5 × 8 = ₹1,60,000 — the divisor difference costs about 13%.
Key Gratuity Rules
| Rule | Detail |
|---|---|
| Eligibility | 5 years continuous service (waived for death/disability) |
| 4 years 240 days | Several High Court rulings treat this as qualifying — contested but frequently accepted |
| Tax-free limit | ₹20 lakh lifetime for covered private employees; government gratuity fully exempt |
| Payment deadline | 30 days from due date; 10% interest applies beyond |
| Act maximum | ₹20 lakh (employers may pay more; excess is taxable) |
| Salary basis | Basic + Dearness Allowance only — never full CTC |
| Forfeiture | Only for termination due to proven misconduct causing damage, riotous conduct, or moral turpitude offenses |
Why Your Basic Salary Decides Your Gratuity
Because the formula uses Basic + DA, a CTC heavy on allowances and variable pay produces surprisingly small gratuity. Two employees at ₹12L CTC can have basics of ₹4L and ₹6L — after 10 years their gratuities differ by 50% (≈₹1.15L vs ₹1.73L). When negotiating offers, basic salary percentage quietly sets your PF, gratuity, and leave encashment simultaneously. The new labour codes' 50%-of-CTC wage floor, when fully implemented, will push these exit benefits up across the board.
Tax Treatment in Detail
For covered private-sector employees, the exemption is the least of three: actual gratuity received, ₹20 lakh (lifetime aggregate across employers), or the formula amount (15/26 × last salary × years). Amounts above the least-of-three are taxed as salary in the year of receipt. Government employees: fully exempt. Gratuity received by nominees on an employee's death is exempt without limit. Keep gratuity certificates from each employer — the ₹20L limit is lifetime, and the second employer's payout needs the first's figures.
Claiming Your Gratuity: Process and Problems
- Apply with Form I within 30 days of leaving (late applications are still valid — the limit binds the employer, not you).
- Employer must pay within 30 days of it becoming due, else 10% annual interest applies automatically.
- Disputes go to the Controlling Authority (Assistant Labour Commissioner) — a simple, lawyer-optional process with a strong employee success rate for formula and eligibility disputes.
- Common employer errors to check: computing on basic alone when DA exists, ignoring the 6-month round-up, using 15/30 while actually covered by the Act, and "forfeiting" gratuity for ordinary resignation (unlawful — forfeiture needs proven serious misconduct).
Gratuity in Your Exit Planning
Gratuity is usually the largest single item in a long-tenure full and final settlement. Before resigning near the 5-year mark, check your exact continuous-service math (240-day years, unpaid leave gaps); before resigning at 4 years 8 months, seriously consider waiting — the difference is the entire amount. Time your notice period end date so your last working day crosses the threshold, not misses it by days.
Frequently Asked Questions
How is gratuity calculated?
For covered establishments: last drawn (Basic + DA) × 15/26 × completed years of service. ₹40,000 with 8 years gives about ₹1.85 lakh.
Am I eligible for gratuity after 4 years 7 months?
The Act requires 5 years, but several High Court rulings accept 4 years + 240 days of continuous service. Many employers honor it; others contest — check your state's precedent and push via the Controlling Authority if refused.
Is gratuity taxable?
Private covered employees are exempt up to the least of: actual amount, ₹20 lakh lifetime, or the formula amount. Government employees are fully exempt. Excess is taxed as salary.
Is gratuity calculated on basic salary or CTC?
Only on last drawn Basic + Dearness Allowance — never full CTC. This is why low-basic salary structures produce smaller gratuity than employees expect.
Does 7 years 7 months count as 8 years?
Yes. More than 6 months in the final year rounds up to a complete year under the Act; 5 months rounds down.
Is gratuity deducted from my salary?
No — it is employer-funded. The ~4.81% of basic shown in CTC breakups is the employer's provision for your accruing gratuity, not a deduction from pay.
When must gratuity be paid?
Within 30 days of becoming due. Delays attract 10% annual interest, and disputes go to the Controlling Authority (Assistant Labour Commissioner).
Can gratuity be forfeited if I resign?
No — ordinary resignation after 5 years earns full gratuity. Forfeiture is lawful only for termination due to proven misconduct causing damage, violence, or moral turpitude offenses.
What is the maximum gratuity amount?
₹20 lakh under the Act (also the lifetime tax-free ceiling). Employers may voluntarily pay more; the excess is taxable salary.
Does gratuity apply during notice period?
Yes — notice period served counts as service. If serving notice takes you past 5 years (or past a 6-month rounding boundary), your entitlement grows accordingly.
✓ Formula verified • Last updated: July 10, 2026