How is gratuity calculated in India?

For employees covered by the Gratuity Act: Gratuity = (Last drawn salary x 15 x years of service) / 26. Last drawn salary means basic pay + dearness allowance. 15 represents 15 days' wages per completed year, and 26 is the number of working days in a month. For employees not covered by the Act, the divisor is 30 instead of 26.

How much gratuity is tax-free in India?

For private sector employees covered by the Gratuity Act, the tax-exempt amount is the least of: actual gratuity received, Rs 25,00,000 (Rs 25 lakh), or 15 days' salary for each completed year. The Rs 25 lakh limit was increased from Rs 20 lakh effective 29 March 2018. For government employees, gratuity is fully exempt up to Rs 25 lakh.

What counts as last drawn salary for gratuity calculation?

Under the Gratuity Act, last drawn salary means basic pay + dearness allowance (DA) at the time of retirement or resignation. It does not include HRA, special allowances, bonuses, or other components.

Gratuity Calculator India — FY 2025-26

Q: What is gratuity and who is eligible?

Gratuity is a lump-sum payment made by an employer to an employee as a reward for long service, governed by the Payment of Gratuity Act 1972. You are eligible if you have completed at least 5 years of continuous service with the same employer. The Act applies to establishments with 10 or more employees. Exceptions: gratuity is payable regardless of tenure in cases of death or disablement.

Q: Can I receive gratuity if I resign before 5 years?

Generally no. The minimum service requirement is 5 years of continuous service. Exceptions: death of the employee (gratuity paid to nominee regardless of tenure) and disablement due to disease or accident. Note that 4 years and 6+ months counts as 5 years due to the rounding rule.

Calculate your gratuity under the Payment of Gratuity Act 1972. Enter your last drawn salary and years of service to see the exact amount, tax-free portion, and how gratuity grows with tenure. Covers both Act-covered and non-Act employees.

Enter your salary details to calculate gratuity under the Payment of Gratuity Act 1972

Basic salary (monthly)

₹

Your last drawn monthly basic pay

Dearness Allowance (monthly)

₹

DA component of your salary. Enter 0 if not applicable

Years of service

yrs

Completed years of continuous service

Extra months (beyond completed years)

6+ months counts as a full year

Covered by Gratuity Act

Yes

Applies to organisations with 10+ employees. Uses divisor of 26 (vs 30 if not covered)

Government employee

Government employees have a different gratuity formula under CCS (Pension) Rules

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How to Use This Calculator

Gratuity Amount tab

Enter your last drawn basic salary, Dearness Allowance (DA), and years of service. The calculator computes your gratuity using the formula from the Payment of Gratuity Act 1972. It shows the total gratuity, tax-free portion, and taxable portion (if any). Expand "More options" to adjust for extra months, non-Act coverage, or government employment.

Tax on Gratuity tab

Calculate the tax exemption on your gratuity. For employees covered by the Gratuity Act, the exempt amount is the least of: (a) actual gratuity received, (b) &rupee;25 lakh statutory limit, or (c) the formula-calculated amount. For government employees, gratuity is fully exempt up to &rupee;25 lakh. Enter the actual gratuity received from your employer if it differs from the formula amount.

Gratuity at Different Tenures tab

See a comparison table showing how your gratuity grows at 5, 10, 15, 20, 25, and 30 years of service. Useful for understanding the value of staying longer with your employer and planning your career moves.

Share your result

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The Formula

Gratuity is calculated as a lump-sum payment based on your last drawn salary and years of service:

Employees covered by the Gratuity Act (10+ employees):
Gratuity = (Last Drawn Salary × 15 × Years of Service) ÷ 26

Employees NOT covered by the Act (< 10 employees):
Gratuity = (Last Drawn Salary × 15 × Years of Service) ÷ 30

Where:
Last Drawn Salary = Basic Pay + Dearness Allowance (DA)
15 = 15 days’ wages for each completed year of service
26 = Working days in a month (as per the Act)

Tax Exemption (Section 10(10) of Income Tax Act):
Exempt amount = Least of:
• Actual gratuity received
• &rupee;25,00,000 (&rupee;25 lakh)
• 15 days’ salary for each completed year of service

Rounding rule: Service of 6+ months in the last year counts as a full year.

The key distinction is the divisor: 26 for Act-covered employees (assuming 26 working days per month) versus 30 for non-Act employees (assuming 30 calendar days). This means Act-covered employees receive a slightly higher gratuity.

Example

Priya — IT professional leaving after 12 years

Priya works at a software company in Bengaluru. Her last drawn basic salary is &rupee;50,000/month and DA is &rupee;5,000/month. She is leaving after 12 years of service. The company has 500+ employees (covered by the Gratuity Act).

Step 1: Determine last drawn salary

Basic salary&rupee;50,000/month

Dearness Allowance&rupee;5,000/month

Last drawn salary&rupee;55,000/month

Step 2: Calculate gratuity

Formula(&rupee;55,000 × 15 × 12) ÷ 26

Gratuity amount&rupee;3,80,769

Step 3: Tax treatment

Gratuity received&rupee;3,80,769

Tax exemption limit&rupee;25,00,000

Taxable amount&rupee;0 (fully exempt)

Final result

Total gratuity&rupee;3,80,769

Tax payableNil

Net gratuity in hand&rupee;3,80,769

Priya receives &rupee;3,80,769 as gratuity, fully tax-free since it is well below the &rupee;25 lakh exemption limit.

FAQ

What is gratuity and who is eligible? ▼

Gratuity is a lump-sum payment made by an employer to an employee as a reward for long service, governed by the Payment of Gratuity Act 1972. You are eligible if you have completed at least 5 years of continuous service with the same employer. The Act applies to establishments with 10 or more employees. Exceptions to the 5-year rule: gratuity is payable regardless of tenure in cases of death or disablement of the employee.

How is gratuity calculated? ▼

For employees covered by the Gratuity Act: Gratuity = (Last drawn salary × 15 × years of service) ÷ 26. "Last drawn salary" means basic pay + dearness allowance (DA). 15 represents 15 days' wages per completed year, and 26 is the number of working days in a month. For employees not covered by the Act (organisations with fewer than 10 employees), the divisor is 30 instead of 26. Service of 6 months or more in the last year is rounded up to a full year.

How much gratuity is tax-free? ▼

For private sector employees covered by the Gratuity Act, the tax-exempt amount is the least of: (a) actual gratuity received, (b) ₹25,00,000 (₹25 lakh), or (c) 15 days' salary for each completed year of service. The ₹25 lakh limit was increased from ₹20 lakh effective 29 March 2018 (CBDT notification). For government employees, gratuity is fully exempt up to ₹25 lakh. The ₹25 lakh exemption is a lifetime limit across all employers.

Is gratuity mandatory for all employers? ▼

The Payment of Gratuity Act 1972 is mandatory for establishments with 10 or more employees (factories, mines, oilfields, plantations, ports, railways, shops and other commercial establishments). Once the Act applies to an establishment, it continues to apply even if the number of employees falls below 10. Many smaller employers also pay gratuity voluntarily as part of their employment terms, though the formula may differ.

What counts as "last drawn salary" for gratuity? ▼

Under the Gratuity Act, "last drawn salary" means basic pay + dearness allowance (DA) at the time of retirement/resignation. It does not include HRA, special allowances, bonuses, or other components. For employees not covered by the Act, "salary" for tax exemption purposes means basic + DA (average of the last 10 months). If you receive a commission as a percentage of turnover, that is also included in the salary for gratuity calculation.

Can I receive gratuity if I resign before 5 years? ▼

Generally, no. The minimum service requirement under the Gratuity Act is 5 years of continuous service. However, there are two important exceptions: (1) death of the employee — gratuity is paid to the nominee/legal heir regardless of tenure, and (2) disablement — if the employee becomes disabled due to disease or accident. Some employers may voluntarily pay gratuity for shorter tenures as part of their HR policy, but this is not legally required. Note: 4 years and 6+ months of service counts as 5 years for the rounding rule.

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