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Calculate your exact gratuity using the standard Indian formula. Enter your basic salary, DA, and years of service — get the gratuity amount, tax exemption status, and a full step-by-step breakdown. Free. No login required.
For the complete guide on eligibility, resignation rules, and the Code on Social Security, 2020, read our Gratuity Guide →
Quick Answer
Gratuity formula (covered employee): (Basic + DA) × 15 × Years ÷ 26. Minimum service: 5 years. Months beyond 6 round up. Tax exempt up to ₹20 lakh for private sector employees under Section 10(10).
Enter only the basic salary — not gross or CTC
Most private sector employees have ₹0 DA
Months > 6 round up to next full year. Months ≤ 6 are ignored.
Establishments with 10+ employees are covered (divisor: 26 vs 30).
(Basic + DA) × 15 × 7 ÷ 26Fully Tax Exempt under Section 10(10)
Private sector employees are exempt up to ₹20,00,000 lifetime aggregate. Government employees enjoy full exemption.
₹50,000 + ₹07 years + 4 months → 4 months ≤ 6, ignored → 7 years₹50,000 × 15 × 7 ÷ 26Exempt up to ₹20,00,000 for private sector employeesImportant Note: This calculator provides an estimate for educational purposes. Actual gratuity eligibility and payment may depend on employment terms, applicable laws, and employer policies. Consult your HR department or a legal advisor for your specific situation.
Important Note — Please Read
This calculator provides an estimate for educational purposes. Actual gratuity eligibility and payment may depend on employment terms, applicable laws, and employer policies. The Code on Social Security, 2020 is implemented in phases — verify your exact entitlement with your employer's HR department or a qualified labour law advisor.
Gratuity is a lump-sum monetary benefit paid by an employer to an employee as a token of appreciation for long and continuous service. It is a statutory obligation for covered establishments in India — meaning employers are legally required to pay it when eligible employees leave the organisation through retirement, resignation, death, or disability.
Under the Code on Social Security, 2020 (which replaced the Payment of Gratuity Act, 1972 with effect from November 21, 2025), gratuity is governed by Chapter V. The law covers factories, mines, oilfields, plantations, ports, railway companies, shops, and other establishments with ten or more employees.
Gratuity is entirely employer-funded — the employee makes no contribution towards it. This distinguishes it from EPF (Employee Provident Fund), where both employer and employee contribute 12% of basic salary each month. Understanding gratuity is especially important for employees planning long careers at a single employer, since the amount grows proportionally with both salary and years of service.
To understand how basic salary drives your gratuity payout, read our Salary Structure Optimization guide — choosing a higher basic-to-CTC ratio significantly increases your terminal gratuity.
The gratuity formula has two variants depending on whether the establishment is covered under the Code on Social Security, 2020:
10 or more employees — standard formula
Gratuity = (Basic + DA) × 15 × Years ÷ 26
26 represents the average number of working days in a month. 15 represents half a month's salary per year.
Fewer than 10 employees — voluntary / contractual
Gratuity = (Basic + DA) × 15 × Years ÷ 30
30 represents calendar days. Courts commonly apply this divisor for uncovered establishment gratuity disputes.
Service Rounding Rules
If additional months beyond completed years exceed 6 → round up to the next full year
If additional months are 6 or fewer → ignore, use only completed years
Standard gratuity eligibility requires 5 years of continuous service. Continuous service means unbroken employment, including authorised leaves and lay-off periods. Short breaks due to illness, accident, or authorised leave do not break continuity.
| Situation | Eligibility | Min. Service |
|---|---|---|
| Resignation | Yes | 5 years |
| Retirement / Superannuation | Yes | 5 years |
| Death during service | Yes (nominee) | None |
| Total permanent disability | Yes | None |
| Fixed-term contract (from Nov 2025) | Yes | 1 year |
| Termination for misconduct | Partial / nil | Employer discretion |
The formula (Basic + DA) × 15 ÷ 26 effectively calculates half a month's salary per year of service. The number 15 represents 15 working days (half a 30-day month), and 26 represents the assumed working days in a month. So the effective rate is 15/26 of monthly salary per year — approximately 0.577 months of salary per year served.
For a simple example: an employee with ₹50,000 basic salary, no DA, and 10 years of service:
= ₹50,000 × 15 × 10 ÷ 26
= ₹75,00,000 ÷ 26
= ₹2,88,462
This amount is entirely tax-exempt for private sector employees since it is below the ₹20 lakh ceiling. At 20 years of service with the same salary:
= ₹50,000 × 15 × 20 ÷ 26
= ₹5,76,923
Still well within the ₹20 lakh exemption. At ₹1,00,000 basic salary and 20 years, gratuity = ₹11,53,846 — still exempt. This shows why the ₹20 lakh ceiling is generous for most private sector employees.
Example 1 — IT Professional
₹80,000 × 15 × 9 ÷ 26Example 2 — Senior Manager
₹1,50,000 × 15 × 15 ÷ 26Example 3 — Government Employee with DA
₹90,000 × 15 × 30 ÷ 26Resigning after completing 5 years of continuous service entitles you to full statutory gratuity — the employer cannot reduce or withhold it. The gratuity must be paid within 30 days of the last working day. If your resignation is accepted and all dues are cleared, file Form I (application for gratuity) with your employer before leaving.
A common misconception is that gratuity is only for retirement. It is equally payable on voluntary resignation after 5 years. Many employees lose this benefit by leaving just before completing 5 years. The rounding rule helps — if you have served 4 years and 7 months, that rounds to 5 years, making you eligible.
For employees planning their exit timing, consider reading our complete gratuity guide to understand exactly when eligibility is triggered.
At superannuation (retirement age, typically 58–60 in the private sector and 60 in the government), gratuity is calculated on the last drawn basic salary and DA. Long-service employees approaching retirement often have their highest-ever basic salary at this point, maximising their gratuity payout.
For government employees, the administrative ceiling was raised to ₹25,00,000 effective January 1, 2024 (PIB notification). Private sector employees remain subject to the ₹20,00,000 income tax exemption limit. Gratuity above ₹20 lakh is taxable in the hands of the retired employee.
Gratuity tax treatment is governed by Section 10(10) of the Income Tax Act, 1961. The exemption applies to both old and new tax regimes — it is not a deduction but an exemption from income tax on a specific receipt.
| Employee Category | Tax Exemption | Legal Basis |
|---|---|---|
| Government employees (central, state, defence) | Fully exempt — no upper limit | Section 10(10)(i) |
| Private sector — covered under Code on SS 2020 | Exempt up to ₹20,00,000 (lifetime aggregate) | Section 10(10)(ii) |
| Private sector — uncovered establishments | Exempt up to ₹20,00,000 (lifetime aggregate) | Section 10(10)(iii) |
Lifetime aggregate limit: The ₹20 lakh exemption is a lifetime total across all employers. If you received ₹8 lakh gratuity from a previous employer and ₹15 lakh from the current one, only ₹12 lakh of the second gratuity is exempt (₹8L + ₹12L = ₹20L total). The remaining ₹3 lakh is taxable.
For comprehensive tax planning strategies including how gratuity interacts with your overall salary, visit our Best Tax Saving Options guide and use the Form 16 Analyzer to understand your effective tax position.
Resigning just before completing 5 years
Many employees leave after 4 years 9 months, unaware that the 6-month rounding rule does not help them here (4 years 9 months rounds to 5 years — making them eligible). But employees who leave at 4 years 5 months get nothing. Timing your exit carefully can mean a significant financial difference.
Using CTC or gross salary in the formula
Gratuity is calculated only on basic salary plus DA. Using gross salary or CTC inflates the estimate significantly. Always check your pay slip for the specific basic salary figure, which is typically 40–50% of gross in private sector roles.
Assuming gratuity is only for retirement
Gratuity is payable on any qualifying separation — resignation, retirement, death, or disability — after 5 years of service. Many mid-career employees who resign after 7–10 years are entitled to substantial gratuity but fail to claim it properly.
Not filing the gratuity claim form
Gratuity does not flow automatically in all cases. In some organisations, you must file Form I (claim for gratuity) within 30 days of the gratuity becoming payable. Failing to file can delay payment and complicate the process. Confirm the procedure with your HR department on your last day.
Ignoring the ₹20 lakh lifetime aggregate
Multiple-employer careers can push total gratuity above ₹20 lakh over a lifetime. Employees who received gratuity from a previous employer must account for that amount when calculating their remaining exemption at the current employer.
Conflating gratuity with PF
PF accumulates monthly from both employer and employee contributions. Gratuity has no monthly accrual — the full amount is paid in a lump sum at separation. Some salary calculators and offer letters show a gratuity provision in CTC, but this does not mean the money is being separately held for you month by month.
Related Tools & Guides
The standard gratuity formula for employees covered under the Code on Social Security, 2020 is: Gratuity = (Basic Salary + Dearness Allowance) × 15 × Eligible Years of Service ÷ 26. For uncovered establishments (fewer than 10 employees), the divisor is 30 instead of 26. The result is the total gratuity payable at the time of separation.
The minimum continuous service required for gratuity eligibility is 5 years for regular employees under the Code on Social Security, 2020. Fixed-term contract employees became eligible after 1 year of continuous service following implementation on November 21, 2025. Death and disability cases are exempt from the 5-year minimum — gratuity is paid regardless of service length.
Additional months beyond completed years are rounded as follows: if the additional months exceed 6 (i.e., 7 months or more), they are rounded up to the next full year. If the additional months are 6 or fewer, they are ignored. For example, 7 years and 8 months counts as 8 years; 7 years and 5 months counts as 7 years.
Gratuity tax exemption depends on your employment category. Government employees (central, state, and defence) receive complete tax exemption with no upper limit. Private sector employees covered under the Payment of Gratuity Act or Code on Social Security are exempt up to ₹20,00,000 (₹20 lakh) — this is a lifetime aggregate limit across all employers. Any gratuity above ₹20 lakh is taxable as salary income. The ₹20 lakh limit applies under both old and new tax regimes.
Only the last drawn basic salary plus Dearness Allowance (DA) is used in the gratuity formula. Other salary components — HRA, special allowance, bonus, LTA, conveyance, incentives — are excluded. Most private sector employees in India have zero DA, so their gratuity is calculated on basic salary alone. Government employees and public sector employees often have a DA component that increases their gratuity.
No, resigning before completing 5 years of continuous service forfeits gratuity eligibility for regular employees. However, there are exceptions: if death or total permanent disability occurs during service, gratuity is paid regardless of service length. Fixed-term contract employees (after November 21, 2025) are eligible after 1 year. Some employers offer contractual gratuity as an ex-gratia payment even below 5 years, but this is discretionary, not statutory.
A covered establishment has 10 or more employees and is governed by the Code on Social Security, 2020. The gratuity formula for covered employees uses a divisor of 26 (representing working days in a month). An uncovered establishment has fewer than 10 employees and is not legally bound by the Code, though they may pay voluntary gratuity. When voluntary gratuity is paid, courts commonly apply a divisor of 30 (calendar days). A covered establishment that later falls below 10 employees remains covered.
The Code on Social Security, 2020 does not specify a statutory upper limit on the gratuity amount itself — the formula can produce any amount based on salary and service years. However, the income tax exemption is capped at ₹20,00,000 (₹20 lakh) for private sector employees. Government employees received an administrative ceiling increase to ₹25,00,000 effective January 1, 2024, per PIB notification, but this is an administrative rule, not a statutory limit on the gratuity amount.
At retirement, gratuity is calculated on the last drawn basic salary and DA. The 5-year minimum service condition must have been met at some earlier point — it is not waived simply because retirement age has been reached. Gratuity on retirement is paid within 30 days of retirement. If delayed, the employer must pay interest on the gratuity amount. For most long-service employees, retirement gratuity is fully or substantially tax-exempt under Section 10(10).
An employer can forfeit gratuity (partially or fully) only if the employee's services were terminated for: (a) disruptive conduct causing damage or destruction to property, or (b) any act constituting a criminal offence involving moral turpitude. Forfeiture requires a formal termination and cannot be applied arbitrarily. A termination without proven misconduct does not allow forfeiture. Employees who believe their gratuity was wrongly denied can file a complaint with the Controlling Authority under the applicable labour office.
Gratuity is a one-time lump-sum payment made entirely by the employer — the employee makes no contribution towards it. PF (Employee Provident Fund) is a monthly contributory scheme where both employer and employee contribute 12% of basic salary each month. Gratuity eligibility requires 5 years of continuous service. PF accumulates from day one of employment. Both are retirement/exit benefits, but gratuity is a reward for long service while PF is a forced savings mechanism.
Yes, basic salary is the single most important factor in the gratuity formula because it is the only salary component included in the calculation. A higher basic salary directly increases gratuity. Employees with a salary structure that has low basic and high allowances receive lower gratuity. This is an important consideration when negotiating salary — choosing a higher basic-to-CTC ratio improves both gratuity and PF accumulation. Read our salary structure guide for details.
Under the Code on Social Security, 2020, the employer must pay gratuity within 30 days of the gratuity becoming payable (i.e., from the date of separation or death). If payment is delayed beyond 30 days, the employer is liable to pay interest on the outstanding gratuity amount at the rate prescribed. The employee or nominee must file Form I (claim application) within 30 days of the gratuity becoming due. The employer has 15 days from receipt of application to respond.
The formula is identical — (Basic + DA) × 15 × Years ÷ 26 — regardless of the reason for separation, provided the minimum eligibility criteria are met. The difference is in forfeiture risk: gratuity may be forfeited (partially or fully) in cases of termination for misconduct, but not on voluntary resignation. On resignation after 5 years, full statutory gratuity is payable. The employer cannot reduce or withhold gratuity simply because the employee resigned.