Gratuity Calculator
Basic + DA, years served, and the 15/26 formula — with the five-year rule and the ₹20 lakh ceiling applied.
Basic pay plus dearness allowance only — not gross salary, not CTC. HRA, bonus and reimbursements are excluded.
An estimate from the standard formula. Your final settlement depends on your employer's record of continuous service. Not legal or tax advice.
How gratuity is calculated in India
Gratuity is a lump sum an employer pays for long service. Under the Payment of Gratuity Act, 1972 it applies to any establishment with ten or more employees, and the formula is fixed: last drawn monthly basic pay plus dearness allowance, divided by 26, multiplied by 15, multiplied by the number of years served. The 26 is the legal working month — four Sundays are stripped out of a 30-day month — and the 15 is the fifteen days of wages the Act grants for every completed year.
Two details decide whether your number matches your employer's. The first is which salary you feed in: only basic plus DA, never gross and never CTC. The second is how part-years are treated, which is where most online estimates disagree with the payslip.
Worked example: covered employer, ₹40,000 basic + DA, 7.5 years
One day of wages is 40,000 divided by 26, or ₹1,538.46. Fifteen days is ₹23,076.92. Service of 7 years and 6 months rounds up to 8 because six months or more counts as a full year, so the payout is 23,076.92 multiplied by 8 = ₹1,84,615, roughly ₹1.85 lakh. Had the same person left at 7 years and 5 months, the rounding would have gone the other way to 7 years and the payout would be ₹1,61,538 — about ₹23,000 lost to a four-week difference in the resignation date.
The same person at an employer outside the Act
If the employer has fewer than ten employees and is not covered, the common practice is 15 days over a 30-day month, and only completed years count. One day becomes 40,000 divided by 30, or ₹1,333.33; fifteen days is ₹20,000; and 7.5 years is treated as 7. The payout falls to ₹1,40,000. Same salary, same tenure, ₹44,615 less — which is why the covered/not-covered switch matters as much as the salary figure.
Rounding, in plain terms
For covered employees the Act's practice is to round the final part-year to the nearest whole year, with six months as the tipping point. 6.4 years counts as 6. 6.5 counts as 7. 6.9 counts as 7. Outside the Act nothing rounds up: 6.9 years is six years of gratuity. If your exit date is flexible and you are within a couple of months of crossing a half-year, that is real money on the table.
The ₹20 lakh ceiling
The statutory ceiling is ₹20 lakh. It is easiest to understand as a tax boundary rather than a payment ban. For central government employees gratuity is fully exempt from income tax. For private-sector employees covered by the Act, the exempt amount is the lowest of three figures: the gratuity actually received, ₹20 lakh, or 15 days of salary for every completed year. Anything above the exemption is added to your taxable income for the year.
An example: a senior manager on ₹2,20,000 basic + DA with 28 years of service. Fifteen days is ₹1,26,923, and across 28 years the formula produces ₹35,53,846. The first ₹20 lakh is tax-free; the remaining ₹15.5 lakh is taxable salary income. Many employers still pay the full amount, treating the excess as ex-gratia, so it is worth reading your offer letter rather than assuming the payout is capped at ₹20 lakh.
The ₹20 lakh limit is also a lifetime figure across all employers. If you took ₹8 lakh of exempt gratuity from a previous job, only ₹12 lakh of exemption remains for the next one.
Switching jobs, and what "continuous service" means
Gratuity does not travel with you the way provident fund does. Each employer pays for the years served with that employer, and the five-year clock restarts on your first day at the new company. Someone with four stints of four years each has three decades of experience and no gratuity at all. That is a genuine argument for staying past the five-year mark before a switch, and one reason many resignations in India are timed to just after an anniversary.
Continuous service also survives sanctioned leave, maternity leave, lay-offs and strikes that are not attributable to the employee, and transfers within the same group where the employment is treated as unbroken. Absence without leave can break it. If your employer's HRMS shows a different tenure than you expect, ask for the continuous-service calculation in writing before you accept the settlement figure.
Limits of this calculator
This tool implements the standard statutory formula and nothing more. It does not model seasonal establishments, which are paid at seven days per season, piece-rated employees whose wages are averaged over three months, or gratuity forfeited for misconduct causing damage or violence. It does not compute income tax on the excess above the exemption, and it cannot verify your employer's service records. Treat the result as the number to check your settlement letter against, not as legal or tax advice. Employers must pay gratuity within 30 days of it becoming due, and interest is payable on delays, so a mismatch is worth raising early.
Sources & further reading
- Ministry of Labour & Employment, Government of India — administers the Payment of Gratuity Act, 1972 and its coverage rules
- India Code — official text of the Payment of Gratuity Act, 1972, including the 15/26 formula and continuous service
- Income Tax Department, India — exemption limits for gratuity received by salaried employees
Frequently asked questions
Do I need five years to get gratuity?
Yes, in normal resignations and retirements you need five years of continuous service with the same employer. The rule is waived if service ends due to death or permanent disability, when gratuity is paid for the actual period served. Some High Courts have held that 4 years and 240 days counts as the fifth year, but this reading is not uniform across states, so confirm with your employer or a labour lawyer before counting on it.
Which parts of my salary count?
Only basic pay plus dearness allowance, taken from your last drawn monthly salary. HRA, conveyance, medical allowance, overtime, bonus and employer PF contributions are all excluded. That is why gratuity on a ₹80,000 gross salary is often calculated on ₹40,000 — the basic component is typically 40 to 50 percent of gross.
What does 15/26 actually mean?
The Act pays 15 days of wages for every completed year of service, and it treats a month as 26 working days rather than 30, because four Sundays are excluded. So one day of wages is monthly pay divided by 26, and a year of service earns 15 of those days. Employers outside the Act commonly use 15/30 instead, which produces a smaller figure for the same salary.
Is gratuity taxable?
Government employees receive gratuity fully exempt from income tax. For private-sector employees covered by the Act, the exemption is the least of the actual gratuity, ₹20 lakh, or 15 days of salary per completed year. The ₹20 lakh limit is a lifetime cap across all employers, so amounts received in earlier jobs use it up.