What Is a Gratuity Calculator?
A gratuity calculator works out the lump sum your employer owes you for the years you have put in. The number itself comes from a fixed legal formula, so the value of a calculator is not really the arithmetic. It is making sure the right figures go into the formula, that the years are counted the way the law counts them, and that you understand which part of the payout is tax-free and which is not.
Gratuity in India is governed by the Payment of Gratuity Act, 1972. It is a statutory benefit, not a bonus and not something an employer can decline to pay once you qualify. The Act applies to factories, mines, plantations, shops, and establishments with 10 or more employees, and once it applies to an establishment it continues to apply even if the headcount later drops below 10. This calculator uses the Act's own formula and flags the Rs 20 lakh tax-exemption ceiling so the figure you see is the figure that matters.
Formula to Calculate Gratuity
Gratuity for employees covered under the Act is calculated with a single standard formula:
The logic behind it is simpler than it looks. Dividing your monthly Basic plus DA by 26 gives a notional daily wage (26 is the assumed number of working days in a month, leaving out the four Sundays). Multiply that daily wage by 15 and you get roughly half a month's pay credited for every completed year of service.
| Component | Meaning |
|---|---|
| Last Drawn Salary | Basic salary + Dearness Allowance only. Not gross, not CTC. |
| Years of service | Completed years, with any part-year over 6 months rounded up |
| 15 | 15 days of wages credited per completed year of service |
| 26 | Assumed working days in a month, used to derive the daily wage |
One detail that trips people up: for employees of establishments not covered under the Act, the divisor is 30 instead of 26, and the calculation uses average salary of the last 10 months. That yields a lower figure. This calculator uses the 26-day basis, which applies to the large majority of covered employees.
How Gratuity Is Calculated for Private Sector Employees
For private-sector employees, only two pay components feed the formula: Basic Salary and Dearness Allowance. Every other line on your payslip, including HRA, conveyance, special allowance, and performance pay, is excluded. This is why two people with the same gross salary can receive very different gratuity if their salary structures put different weight on Basic. A structure with a higher Basic produces a higher gratuity, and a higher EPF and bonus alongside it. For the full picture of how your pay splits, see our salary structure guide.
On the years side, the law rounds in your favour at the half-year mark. More than six months in your final part-year counts as a whole year. So 12 years and 8 months is treated as 13 years, while 12 years and 4 months stays at 12. The rounding only comes into play once you have crossed the basic five-year eligibility threshold.
Who Is Eligible for Gratuity?
Eligibility under the Act rests on a few clear conditions:
- You must complete at least five years of continuous service with the same employer.
- The establishment must be covered under the Payment of Gratuity Act, which includes most companies with 10 or more employees.
- Gratuity becomes payable on resignation, retirement, superannuation, termination, or death and disablement.
The five-year rule has two important relaxations. It is waived entirely if service ends due to death or disablement, in which case gratuity is payable regardless of tenure. And under the Code on Social Security, 2020, with rules notified effective 21 November 2025, fixed-term contract employees become eligible for pro-rata gratuity after just one year of continuous service rather than five. This is a meaningful change for anyone employed on a fixed-term basis, and it brings contract staff much closer to permanent employees on this benefit.
Why Gratuity Matters for Employees
Gratuity is one of the few benefits funded entirely by the employer, with nothing deducted from your salary. It accrues quietly in the background at roughly 4.81% of Basic each year, which is the monthly equivalent of the 15/26 formula, and it pays out as a single tax-advantaged lump sum when you leave. For long-tenure employees it can be one of the larger cheques of a career. Because the Rs 20 lakh exemption is a lifetime cap, it is worth tracking how much of it you have used if you receive gratuity from more than one employer over the years.
What Are the Income Tax Rules for Gratuity?
How gratuity is taxed depends entirely on who you work for. The exemption sits under Section 10(10) of the Income-tax Act.
| Category | Tax Treatment |
|---|---|
| Government employees | Fully exempt, no monetary limit |
| Private sector (covered under the Act) | Exempt up to Rs 20 lakh (lifetime cumulative limit) |
| Private sector (not covered) | Least of: actual gratuity, Rs 20 lakh, or half-month average salary per year of service |
The Rs 20 lakh ceiling for private-sector employees has been in force since the 2018 enhancement (raised from Rs 10 lakh) and remains unchanged under the 2025 labour codes. It is a lifetime cumulative limit, not a per-employer one. If you received Rs 8 lakh of exempt gratuity from one employer earlier in your career, only Rs 12 lakh of exemption remains for any future gratuity. Anything above the available exemption is added to your salary income for the year and taxed at your slab rate. The calculator flags this automatically when your gratuity crosses Rs 20 lakh. If you want to model the tax on the excess, use the Income Tax Calculator.
What's the Difference Between Gratuity and Provident Fund?
Both are retirement benefits, but they work differently. Gratuity is an employer-funded reward for tenure, paid as a lump sum on exit after five years. Provident Fund is a savings scheme that both you and your employer pay into every month from day one, and it builds a withdrawable corpus with interest.
| Feature | Gratuity | Provident Fund |
|---|---|---|
| Definition | Lump-sum reward for service | Retirement savings scheme |
| Contribution | Paid entirely by employer | Both employer and employee |
| Eligibility | Minimum 5 years of service | From start of employment |
To project your PF corpus alongside your gratuity, use the EPF Calculator. For businesses managing gratuity accruals and provident fund across a workforce, TankhaPay's payroll software tracks both as part of the monthly run.
How to Use the Calculator
- Enter your last drawn monthly Basic + DA, not your gross salary or CTC. Use the slider or type the figure directly.
- Enter your completed years of service. Remember the rounding rule: a part-year over six months counts as a full year.
- Read the gratuity figure on the right. The calculator shows the total payable and tells you whether it sits within or above the Rs 20 lakh tax-exemption limit.
- If the result crosses Rs 20 lakh, the note breaks out the tax-free portion and the taxable balance so you know what to expect on your final settlement.
FAQs
01.How many years are required for gratuity eligibility?
An employee must complete five years of continuous service with the same employer to be eligible for gratuity. This five-year rule is waived if service ends due to death or disablement. Under the Code on Social Security 2020, effective 21 November 2025, fixed-term contract employees become eligible for pro-rata gratuity after just one year of service.
02.Is gratuity taxable in India?
For government employees, gratuity is fully exempt from tax with no upper limit. For private-sector employees, the tax exemption ceiling under Section 10(10) is Rs 20 lakh, and this is a lifetime cumulative limit across all employers. Any gratuity received beyond Rs 20 lakh in total is taxable as salary income at your applicable slab rate.
03.What is the 15/26 rule in the formula?
In the gratuity formula, 15 represents 15 days of salary credited for each completed year of service, and 26 is the assumed number of working days in a month (excluding the four Sundays). Dividing the monthly Basic plus DA by 26 gives the daily wage, which is then multiplied by 15 and by years of service.
04.How are years of service rounded for gratuity?
Completed years are counted in full, and any part-year beyond six months rounds up to a full year. So 12 years and 8 months counts as 13 years, while 12 years and 4 months counts as 12 years. This rounding applies once the basic five-year eligibility is met.
05.Is gratuity calculated on basic salary or gross salary?
Gratuity is calculated only on the last drawn Basic salary plus Dearness Allowance, not on gross salary or full CTC. Allowances such as HRA, conveyance, and special allowance are excluded from the gratuity calculation.
06.What happens if my employer pays gratuity above Rs 20 lakh?
An employer can voluntarily pay more than the formula or the Rs 20 lakh statutory ceiling, but the excess over the Rs 20 lakh exemption limit is taxable in your hands as salary income for that year. The exempt portion appears separately in your Form 16 under Section 10(10).