Gratuity Calculator India

Gratuity Formula (Payment of Gratuity Act 1972)

Gratuity = (Basic + DA) × 15 / 26 × Number of Years of Service

The divisor is 26 because a month is considered to have 26 working days (excluding 4 Sundays). "15" represents 15 days of salary per year of service.

For Organisations Not Covered Under the Act

Gratuity = (Basic + DA) × 15 / 30 × Number of Years of Service

The divisor is 30 (calendar month) instead of 26 working days, resulting in a slightly lower gratuity amount.

Gratuity Eligibility Rules

• Minimum 5 years of continuous service with the same employer is mandatory
• Payable on: resignation, retirement, death, disablement due to accident or illness
• In case of death/disablement, the 5-year condition is waived
• Any organisation with 10 or more employees is covered under the Act

Gratuity Tax Rules

• Government employees: Entire gratuity is tax-exempt
• Private employees covered under Act: Exempt up to ₹20,00,000 (enhanced in 2018)
• Private employees not covered: Exempt up to least of — actual gratuity, ₹20L, or half-month salary × years
• Amount above ₹20L is fully taxable as income in the year of receipt

Important Notes

• If the last year of service has 6 or more months, it rounds up to the next full year
• Gratuity must be paid within 30 days of becoming due; delay attracts interest
• Employer cannot deduct gratuity for misconduct / wilful negligence causing damage
• Gratuity received is shown under "Salary" head in your ITR

Worked Example

Suppose your last drawn Basic + DA is ₹50,000 per month and you have completed 10 years and 7 months of continuous service at a company covered under the Act. Because the final period exceeds 6 months, it rounds up to 11 years. Gratuity = 50,000 × 15 ÷ 26 × 11 = ₹3,17,308. The entire amount is tax-free because it is well under the ₹20 lakh exemption limit for private employees covered under the Act.

Why the 5-Year Rule Matters

The most common reason gratuity claims are denied is the five-year continuous service requirement. If you resign even a few months short of five years, you generally forfeit gratuity entirely — so it can be worth confirming your exact joining date before changing jobs. The only exception is death or disablement, where the five-year condition is waived and the nominee receives gratuity regardless of tenure. A widely cited Madras High Court ruling has also treated 4 years and 240 days in the fifth year as qualifying, though application varies by employer.

Common Gratuity Misconceptions

• “Gratuity is part of my CTC, so I get it yearly.” No — it is paid only when you exit after qualifying service, not annually.
• “It's calculated on my full salary.” Only Basic + DA is used, not allowances like HRA or bonuses.
• “The company can withhold it for any reason.” Gratuity can only be forfeited for proven misconduct causing loss, and must otherwise be paid within 30 days.
• “Contract and fixed-term staff don't qualify.” They can, provided the continuous-service conditions are met.