Last Updated: March 2026 Reviewed by CA & CS Team · Patron Accounting LLP

Gratuity Calculator India — Eligibility & Payout 2026

TL;DR

This Gratuity Calculator computes your gratuity payout using the 15/26 formula under the Payment of Gratuity Act, 1972. Enter your last drawn salary (Basic + DA), years and months of service, and whether your employer is covered under the Act. The tool checks eligibility (5-year rule with rounding), calculates the gratuity amount, and shows the tax-exempt portion under Section 10(10). Max tax-free limit: ₹20 lakh (private) / ₹25 lakh (govt).

Calculate Your Gratuity

Last Drawn Monthly Salary — Basic + DA (₹)

Years of Service

Additional Months

Covered under Gratuity Act?

Employee Type

Gratuity Calculation Formula

The Payment of Gratuity Act, 1972 prescribes two formulas depending on whether the employer is covered under the Act:

Covered under the Act (10+ employees)
Gratuity = (Basic + DA) × 15 × Years of Service ÷ 26

Not covered under the Act (< 10 employees)
Gratuity = (Basic + DA) × 15 × Years of Service ÷ 30

Why 26? 26 = working days in a month (excluding Sundays)
Why 15? 15 days of wages as reward per completed year of service

Year Rounding Rule

If service in the final year exceeds 6 months, it is rounded up to the next full year. For example, 7 years and 8 months = 8 years. But 7 years and 4 months = 7 years. This rounding can make a significant difference — for a ₹50,000 salary, one extra year adds approximately ₹28,846 to the gratuity amount.

Worked Example

Suppose Priya earns ₹60,000 (Basic + DA), has worked for 12 years and 7 months, and her employer is covered under the Act:

Step 1: Round service: 12 years 7 months → 13 years (> 6 months)
Step 2: Gratuity = ₹60,000 × 15 × 13 ÷ 26
= ₹60,000 × 195 ÷ 26
= ₹4,50,000

Tax-exempt: ₹4,50,000 (below ₹20L limit) → Fully tax-free

CA Tip: Gratuity is calculated on Basic + DA only — not on HRA, special allowance, or other components. If your salary structure has a low basic (e.g., 20-30% of CTC), your gratuity will be proportionally lower. Employees negotiating salary should consider requesting a higher basic component to maximise retirement benefits. Refer to labour.gov.in for the latest notifications on the proposed Labour Code changes to basic salary floors.

Gratuity Eligibility Rules

Under Section 4(1) of the Payment of Gratuity Act, gratuity is payable when:

Condition	Service Required	Notes
Superannuation (retirement)	5 years	Normal retirement age
Resignation	5 years	Voluntary separation
Death	No minimum	5-year rule waived; paid to nominee/legal heirs
Disablement (accident/disease)	No minimum	5-year rule waived
Termination by employer	5 years	Unless forfeited for misconduct
Fixed-term contract (new Labour Code)	1 year	If worked 240+ days; proposed under Code on Social Security 2020

What Counts as Continuous Service?

An employee is considered in continuous service if they have worked 240 days in a year (190 days for underground mine workers). Periods of leave, sickness, accident, layoff, strike, lockout, and cessation of work not due to employee fault are all counted as continuous service. The EPFO records and employer attendance data are typically used to verify service continuity during disputes.

Which Establishments Are Covered?

The Act applies to every factory, mine, oilfield, plantation, port, railway, company, or shop where 10 or more employees are employed or were employed on any day in the preceding 12 months. Once covered, the obligation continues even if the employee count drops below 10. The Ministry of Labour can also extend coverage to other establishments by notification.

Taxation of Gratuity

Gratuity taxation depends on the employee category under Section 10(10) of the Income Tax Act, 1961:

Employee Category	Tax Exemption	Limit
Government employees	Fully exempt under Section 10(10)(i)	₹25 lakh
Private — covered under Act	Least of: actual gratuity, ₹20L, or formula amount	₹20 lakh (lifetime)
Private — not covered	Least of: actual gratuity, ₹20L, or half-month salary per year	₹20 lakh (lifetime)

Important: The ₹20 lakh limit is cumulative across your entire working life — not per employer. If you received ₹8 lakh gratuity from Employer A and ₹14 lakh from Employer B, only ₹12 lakh from Employer B is tax-exempt (total ₹20 lakh). The remaining ₹2 lakh is taxable as salary income. File your return accurately using Form 10E on the Income Tax portal.

When Can Gratuity Be Forfeited?

Under Section 4(6) of the Act, an employer can forfeit gratuity partially or wholly only if the employee is terminated for:

Grounds for Forfeiture

Riotous or disorderly conduct, or any act of violence on the premises. Any act that constitutes an offence involving moral turpitude committed during the course of employment (provided the employee is convicted for such offence). Wilful omission or negligence causing damage or loss to employer property (forfeiture limited to the extent of damage/loss).

When Forfeiture Is NOT Allowed

An employer cannot deny gratuity for poor performance, voluntary resignation after 5 years, retrenchment, or any reason other than the three specified grounds above. Employees who believe their gratuity has been wrongfully denied can file a complaint with the Controlling Authority (Assistant Labour Commissioner) under Section 7 of the Act.

Need Gratuity Compliance Help? Patron Accounting handles gratuity computation, actuarial valuations (AS-15/Ind AS 19), Form I filing, and exit settlement processing for companies across India. Get expert assistance →

Frequently Asked Questions About Gratuity

For employers covered under the Act: (Basic + DA) × 15 × Years ÷ 26. For those not covered: (Basic + DA) × 15 × Years ÷ 30. The 26 represents working days (excluding Sundays) and 15 represents half-month wages per year of service. Salary means last drawn basic plus dearness allowance only — HRA and other allowances are excluded from the calculation.

Employees who complete 5 years of continuous service with the same employer. The 5-year rule is waived for death or disablement. Under the new Labour Codes, fixed-term employees qualify after 1 year (if 240+ working days). The Act covers establishments with 10+ employees. Once covered, the obligation continues even if headcount later drops below 10.

Maximum tax-exempt gratuity is ₹20 lakh for private employees and ₹25 lakh for government employees. Employers can pay more than ₹20 lakh, but the excess is called ex-gratia and is fully taxable. The ₹20 lakh limit is cumulative across your entire career — not per employer. So gratuity from all employers combined must not exceed ₹20 lakh for full tax exemption.

15 = half-month wages (15 days of salary) as reward per completed year of service. 26 = working days in a month (excluding Sundays). This gives a higher per-day rate than dividing by 30 (calendar days). For non-covered establishments, the divisor is 30, resulting in approximately 13% lower gratuity. The 15/26 fraction is the standardisation factor across the Act.

If the final year has more than 6 months of service, it rounds up to the next full year. Example: 10 years 7 months = 11 years for calculation. 10 years 5 months = 10 years. This rounding can add significant value — for a ₹40,000 basic, one extra year adds ~₹23,077. Always check your exact service dates against this rounding rule before accepting a gratuity settlement.

Government employees: fully exempt. Private employees covered under Act: least of actual gratuity, ₹20L, or formula amount is exempt. Not covered: least of actual, ₹20L, or half-month salary per year. The ₹20L limit is lifetime cumulative. Any excess is taxed as salary income at your applicable slab rate. File Form 10E on the Income Tax portal for relief under Section 89.

Only in three cases: riotous/disorderly conduct, offence involving moral turpitude (with conviction), or wilful negligence causing property damage (forfeiture limited to damage value). Poor performance, simple resignation, or retrenchment are NOT valid grounds for denial. File a complaint with the Assistant Labour Commissioner under Section 7 if gratuity is wrongfully denied.

For employers with fewer than 10 employees, gratuity is not statutory but may be paid as per company policy. The formula uses 30 (calendar days) as divisor instead of 26. Tax exemption under Section 10(10)(iii) applies: least of actual gratuity, ₹20L, or half-month salary per year of service. Some employers voluntarily follow the Act even when not legally required.

Within 30 days from the date gratuity becomes due (last working day, retirement, or death). Delay beyond 30 days attracts simple interest at 10% per annum. The employee or nominee must apply in Form I. The employer pays using Form L. If there is a dispute, the Controlling Authority (Assistant Labour Commissioner) resolves it within 2-3 months typically.

Yes — most employers include gratuity in CTC at approximately 4.81% of basic salary annually. However, it is not paid monthly. It is a deferred benefit paid only on separation after 5 years of service. When converting CTC to in-hand salary, gratuity is subtracted along with employer PF to arrive at gross salary. Use our CTC to In-Hand Calculator for the full breakup.

The 5-year rule is waived for death or disablement. Gratuity is paid to the nominee (Form F) or legal heirs based on actual service period. Employer must pay within 30 days of the death. The nominee must apply in Form J. If no nomination exists, payment goes to legal heirs. Gratuity received by nominee on death of employee is fully exempt from income tax.

The Code on Social Security, 2020 makes fixed-term employees eligible after 1 year (240+ working days) instead of 5 years. It also proposes basic salary must be at least 50% of gross wages — increasing the gratuity base for many employees. Implementation rules are still pending as of March 2026. Once enforced, gratuity liabilities for employers will increase significantly.

Yes — a CA computes gratuity liability for financial statements (AS-15/Ind AS 19), arranges actuarial valuations, handles Form I filing, and advises on tax implications for both employer and employee. Patron Accounting provides complete payroll, gratuity, EPF, and ESI compliance services for businesses across India including exit settlement processing.