How to Use the Gratuity Calculator
Enter your last drawn monthly basic salary plus dearness allowance, and your length of service in years and months. Pick whether your employer is covered by the Payment of Gratuity Act (almost all establishments with 10+ employees are). The calculator applies the 15/26 formula with the 6-month round-up rule, checks the 5-year eligibility condition, and splits the amount into tax-free and taxable portions against the ₹20 lakh cap.
Gratuity Calculator Formula
Gratuity = (15 × last drawn Basic+DA × qualifying years) ÷ 2615/26= 15 days’ wages per year, on a 26-working-day month (÷30 if not covered by the Act)Basic+DA= Last drawn monthly basic salary plus dearness allowanceyears= Years of service; 6+ months in the last year counts as a full year (covered employees)
Example Calculation
Leaving after 10 years 7 months with a last drawn basic+DA of ₹50,000:
Qualifying years = 11 (7 months rounds up); Gratuity = 15 × 50,000 × 11 ÷ 26
Gratuity = ₹3,17,308 — fully tax-free (below ₹20 lakh)
The 15/26 formula, decoded
Gratuity is a statutory thank-you: 15 days of wages for every year you served, paid when you leave. The odd-looking 26 in the denominator is simply a month expressed in working days (30 days minus 4 Sundays). So 15/26 of one month’s basic+DA per year of service — about 57.7% of a month’s pay per year. Ten years of service therefore earns you roughly 5.8 months of basic salary as a lump sum.
Two details do most of the work in real calculations. First, it is the last drawn basic that counts — so a promotion shortly before leaving raises gratuity on all your years, not just the last one. Second, the round-up rule: 10 years 6 months counts as 11 years, while 10 years 5 months stays 10. Timing an exit by a few weeks can be worth half a month’s salary.
The 5-year cliff
No gratuity is payable before 5 years of continuous service — leave at 4 years 11 months and you get nothing; cross the line and every year counts from year one. If you are close to the threshold and weighing an offer, the calculator above shows exactly what walking away early costs. The cliff does not apply on death or disablement, where the nominee receives gratuity regardless of tenure.
"Continuous service" survives paid leave, maternity leave and lay-offs; it generally does not survive resignation and rejoining, which restarts the clock.
Tax: the ₹20 lakh lifetime shield
For employees covered by the Act, gratuity is tax-exempt up to ₹20 lakh — a lifetime aggregate across employers, not per job. Most salaried Indians never breach it: you would need roughly ₹3.5 lakh monthly basic and 10 years of service to hit the cap. Amounts above the exemption are taxed as salary income in the year of receipt. Government employees are fully exempt with no cap.
A planning note for job-switchers: because the exemption is aggregate, claiming ₹8 lakh exempt at one exit leaves ₹12 lakh of shield for the rest of your career. Keep the figures from each settlement letter.
Gratuity in your CTC — read the fine print
- A "₹15 LPA CTC" typically includes ~4.81% of basic as gratuity provision you may never see if you leave before 5 years.
- On resignation, gratuity must be claimed — file Form I with your employer; it is not always automatic.
- Gratuity is payable on retirement, resignation (after 5 years), retrenchment, death or disablement — not on termination for proven misconduct involving moral turpitude.
- Nominate a beneficiary via Form F when you join; without it, settlements to family get slow and contested.
Frequently Asked Questions
Who is eligible for gratuity?
Any employee who completes 5 years of continuous service with an employer is eligible when they resign, retire, or are retrenched. The 5-year condition is waived if the employee dies or is disabled.
Does 4 years 7 months count as 5 years?
Generally no — eligibility needs 5 completed years. Some courts have accepted 4 years 240 days for establishments working 6-day weeks, but this is contested; do not plan around it. Once eligible, the round-up rule applies to the final year for calculation.
Is gratuity taxable?
For private-sector employees covered by the Act, gratuity is exempt up to the least of: actual gratuity received, the 15/26 formula amount, or ₹20 lakh (lifetime aggregate). Government employees’ gratuity is fully exempt. Any excess is taxed as salary.
Is gratuity part of my CTC?
Most employers include an annual gratuity provision (≈4.81% of basic) in CTC. You only actually receive it if you cross 5 years — one reason CTC overstates real compensation for short stints.
What salary is used — gross or basic?
Only basic salary plus dearness allowance. HRA, special allowance, bonuses and reimbursements are excluded. For piece-rated workers, the average of the last 3 months is used.
When must the employer pay gratuity?
Within 30 days of it becoming due. Delay attracts interest, and disputes go to the controlling authority under the Act.
Assumptions & Methodology
- Covered employees: Gratuity = 15/26 × last drawn (basic + DA) × qualifying years, with 6+ months in the final year rounded up to a full year.
- Non-covered employees: 15/30 × salary × completed years, no round-up.
- Tax-free limit of ₹20 lakh applies to non-government employees; government employees’ gratuity is fully exempt.
- Salary means basic + dearness allowance only — allowances and bonuses are excluded.
Sources
All calculations run in your browser and are provided for information only — they are not investment, tax or legal advice. Verify current rates and rules with the official source above before acting.