Updated June 2026

Gratuity Calculator

Thinking of switching jobs? Find out exactly how much gratuity you're owed based on your salary and years of service — and how much of it is tax-free.

₹
yrs
Organization Type
Tax-Free
Total Gratuity

₹2.88 L

Tax-Exempt (up to ₹20L)

₹2.88 L

Taxable

₹0

Formula Used

(₹50,000 × 15 × 10) / 26

What is Gratuity?

Gratuity is a retirement benefit under the Payment of Gratuity Act, 1972. It is a lump sum payment your employer owes you when you leave the organization after completing 5 or more years of continuous service. Think of it as a "thank you" payment — proportional to your salary and tenure.

Gratuity Calculation Formula

The formula depends on whether your employer is covered under the Payment of Gratuity Act:

Covered under Act: Gratuity = (Last Drawn Salary × 15 × Years of Service) ÷ 26

Not covered: Gratuity = (Last Drawn Salary × 15 × Years of Service) ÷ 30

Here, "Last Drawn Salary" means Basic Salary + Dearness Allowance. The divisor 26 represents working days in a month (excluding 4 Sundays), while 30 is used for calendar days when the Act doesn't apply.

Gratuity Eligibility

You are eligible for gratuity if:

  • You have completed at least 5 years of continuous service (4 years 240 days counts as 5 per Supreme Court ruling)
  • You are leaving due to resignation, retirement, superannuation, or retrenchment
  • In case of death or disability — no minimum service period required

Gratuity Tax Rules

For private sector employees covered under the Act, gratuity up to ₹20 lakh is completely exempt from income tax. This limit was increased from ₹10 lakh in 2019. For central and state government employees, the entire gratuity amount is tax-free regardless of the amount.

If your gratuity exceeds ₹20 lakh, the excess amount is taxed at your applicable income tax slab rate. For example, if your gratuity is ₹25 lakh, only ₹5 lakh is taxable.

Example Calculation

Suppose your Basic + DA is ₹60,000/month and you've served 15 years in a company covered under the Act:

Gratuity = (60,000 × 15 × 15) / 26 = ₹5,19,231

Since this is below ₹20 lakh, the entire amount is tax-free.

How to Maximize Your Gratuity

  • Don't leave before 5 years — even 4 years 11 months means zero gratuity at many companies
  • Negotiate higher basic — HRA/special allowances don't count in gratuity calculation
  • Document your service — breaks in service can reset the 5-year clock

Frequently Asked Questions

What is gratuity?
Gratuity is a lump sum payment made by an employer to an employee as a token of appreciation for services rendered. Under the Payment of Gratuity Act, 1972, it is payable after 5 or more years of continuous service upon resignation, retirement, or death.
How is gratuity calculated?
For employees covered under the Act: Gratuity = (Last Drawn Salary × 15 × Years of Service) / 26. Here, salary means Basic + DA, and 26 represents working days in a month. For those not covered, the divisor is 30.
What is the minimum service period for gratuity?
You need at least 5 years of continuous service to be eligible. However, in case of death or disability, the 5-year rule does not apply — gratuity is payable even for less than 5 years.
Is gratuity taxable?
Gratuity up to ₹20 lakh is exempt from income tax for private sector employees covered under the Act. For government employees, the entire gratuity is tax-free. Any amount above ₹20 lakh is taxable at your income tax slab rate.
Who is covered under the Payment of Gratuity Act?
The Act applies to factories, mines, oilfields, plantations, ports, railway companies, shops, and establishments with 10 or more employees on any day in the preceding 12 months.
What does "Last Drawn Salary" mean for gratuity?
Last drawn salary includes Basic Pay + Dearness Allowance (DA). It does not include HRA, conveyance, medical allowance, or other special allowances. For piece-rated employees, it is the average of last 3 months.
Can my employer refuse to pay gratuity?
An employer can forfeit gratuity only if the employee is terminated for willful misconduct causing damage to property, or for moral turpitude during employment. Otherwise, gratuity is a statutory right and cannot be denied.
What happens if service is 4 years 8 months?
Service of 4 years and 240 days (or 4 years and 190 days for seasonal establishments) is rounded up to 5 years, making the employee eligible. Many companies follow this Supreme Court ruling.

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