SalaryDecode

Updated for FY 2026-27

Gratuity Calculator (Payment of Gratuity Act)

Basic pay plus dearness allowance only — HRA, bonus, and other allowances do not count.

Gratuity needs 5 completed years of service; in the formula, 6 months or more in the final year rounds up to a full year.

Gratuity payable

₹2,30,769

₹50,000 × 15⁄26 × 8 completed years (final part-year of ≥6 months rounded up)

Tax-free under §10(10) (₹20 lakh lifetime cap)
₹2,30,769
Taxable as salary
₹0

Estimate only. Not tax or financial advice. Figures depend on your employer's exact structure — consult a CA for decisions. Updated for FY 2026-27.

How gratuity is calculated

Gratuity is a statutory lump sum your employer owes you when you leave after long service — resignation, retirement, or termination alike. For establishments covered by the Payment of Gratuity Act, 1972 (any employer with 10 or more employees, which is practically every registered company), section 4 fixes the amount by formula:

Gratuity = last drawn monthly (basic + DA) × 15⁄26 × completed years of service

Each piece of that expression has a legal meaning. "Last drawn" means the salary at exit, not an average — so a promotion shortly before leaving raises the entire accrual retroactively. Basic + DA means exactly that: HRA, special allowance, bonus, and every other component are excluded, and since most private-sector structures carry no dearness allowance, the formula usually runs on basic alone. "Completed years" carries a rounding rule — service of 6 months or more beyond the last completed year counts as one more full year, so 7 years 6 months is computed as 8 years while 7 years 5 months stays at 7.

Where the 15⁄26 comes from

The Act grants 15 days' wages for every year of service. To turn 15 days into rupees it needs a daily wage, and here the Act makes a worker-friendly choice: a month is treated as 26 working days — roughly 30 calendar days minus weekly offs — rather than 30. Your daily wage is therefore monthly basic+DA divided by 26, and 15 days of it is basic+DA × 15⁄26, about 57.7% of one month's basic+DA per year served. Had the Act divided by 30 instead, each year would earn only 50% of a month — the 26-day divisor is worth an extra 7.7 percentage points per year.

Worked example with this calculator's defaults: monthly basic+DA of ₹50,000 and 7 years 6 months of service. The part-year rounds up to 8 completed years, so gratuity is ₹50,000 × 15⁄26 × 8 = ₹2,30,769 — well under the tax-free cap, so the entire amount is exempt.

Why your CTC shows gratuity as 4.81% of basic

Open almost any CTC annexure and you will find a line like "Gratuity — 4.81% of basic". That number is not arbitrary; it is the 15⁄26 formula expressed as a monthly accrual. One year of service earns you 15⁄26 of a month's basic+DA. That year contains 12 months of work, so each month the employer's future liability grows by (15⁄26) ÷ 12 = 15⁄312 = 4.807% of monthly basic+DA — rounded to 4.81%. Employers fund this provision (typically through an insurer-managed gratuity trust) and count it in your cost-to-company even though you cannot touch it before the 5-year mark.

This is also why gratuity is one of the quiet gaps between CTC and in-hand salary: if you leave before completing 5 years, the provision your CTC carried every month is simply never paid to you. Two offers with identical CTC but different basic percentages also accrue different gratuity — a structure with 50% basic provisions more than one with 35% basic. Both the CTC offer comparison and the in-hand salary calculator show the gratuity provision line explicitly when decomposing a CTC.

Eligibility: the 5-year rule and its edges

Gratuity becomes payable only after 5 years of continuous service with the same employer. The rounding rule does not help you get there: 4 years 7 months does not round up to 5 for eligibility, even though 6-month round-up applies inside the formula once you are eligible. The 5-year condition is waived entirely when employment ends due to death or disablement — gratuity is then payable to the employee or nominee regardless of tenure. Some High Courts have read 4 years plus 240 worked days in the fifth year as satisfying the requirement, but that view is not applied uniformly across the country, so this calculator keeps the plain 5-year test.

The ₹20 lakh tax-free cap

Under §10(10) of the Income-tax Act, gratuity received on leaving is exempt up to ₹20,00,000 for private-sector employees covered by the Act (government employees are fully exempt). The cap is a lifetime limit: exemption claimed on a gratuity payout from a previous employer reduces the headroom left for the next one. Whatever exceeds the exempt amount is added to your salary income and taxed at your slab in the year of receipt. At today's salary levels the cap binds only for long tenures on high basic — the calculator splits any amount you enter into its tax-free and taxable parts automatically.

Like every tool on this site, this calculator runs entirely in your browser — your salary and service details are never transmitted or stored anywhere. Nothing here is tax or legal advice: the tool shows what the Payment of Gratuity Act's arithmetic produces for the numbers you enter, and the exact payout depends on your employer's records of continuous service. To see how a payout lands against your regular income, run your numbers through the salary hike calculator or the in-hand salary calculator.

Frequently asked questions

Am I eligible for gratuity before completing 5 years?
Under the Payment of Gratuity Act, gratuity becomes payable only after 5 years of continuous service — with one exception: the 5-year requirement is waived if employment ends due to death or disablement. Some High Court decisions (notably Madras, in Mettur Beardsell) have treated 4 years plus 240 days in the fifth year as "continuous service" of five years, but this is not uniformly applied across India and many employers do not follow it. This calculator applies the plain 5-year test; whether the 240-day view helps in a specific case depends on the employer and jurisdiction.
Why does my CTC show gratuity as about 4.81% of basic?
Because 4.81% is the monthly cost of the statutory formula. Gratuity accrues at 15 days of basic+DA for each year of service, and the Act converts days to money using a 26-working-day month — so one year of service earns 15/26 of one month’s basic+DA. Spread over the 12 months in which it accrues, that is (15/26) ÷ 12 = 4.807%, which employers round to 4.81% of basic+DA and show as a monthly provision in the CTC sheet.
Is gratuity taxable?
For government employees, gratuity is fully exempt. For private-sector employees covered by the Payment of Gratuity Act, §10(10) of the Income-tax Act exempts the least of the actual gratuity received, the 15/26-formula amount, and ₹20,00,000 — and the ₹20 lakh figure is a lifetime cap across all employers, not a per-job one. Anything above the exempt amount is taxed as salary income in the year you receive it. Gratuity received during continued employment (rather than on leaving) is fully taxable.
Which salary components count for the gratuity formula?
Only last-drawn basic pay plus dearness allowance. HRA, special allowance, bonus, LTA, employer PF contribution, and every other component are excluded. Most private-sector salary structures have no DA at all, in which case the formula runs on basic alone — which is why two offers with the same CTC but different basic percentages accrue visibly different gratuity.
How does the rounding of part-years work — does 7 years 5 months differ from 7 years 6 months?
Yes, by a full year of accrual. Service beyond a completed year counts as an additional full year only if it is 6 months or more: 7 years 5 months is computed as 7 years, while 7 years 6 months is computed as 8. Note the asymmetry with eligibility — the round-up applies only inside the formula, so 4 years 7 months does not round up to reach the 5-year eligibility threshold.
What if my employer is not covered by the Payment of Gratuity Act?
The Act covers establishments with 10 or more employees, which includes almost every registered company. An employer outside the Act can still pay gratuity voluntarily or by contract, and the tax exemption then follows a different computation: half a month’s average salary (averaged over the last 10 months) per completed year, ignoring part-years entirely, with the same ₹20 lakh ceiling. This calculator implements the covered-employer 15/26 formula, which is the case that applies to nearly all salaried users.

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