Gratuity is a lump sum benefit paid by an employer to an employee as a token of appreciation for long service, and it forms a significant part of your retirement and separation benefits.
Reviewed by: CalcMojo Editorial Team
This gratuity calculator computes your gratuity entitlement based on your last drawn salary, years of service, and type of employment, under the Code on Social Security, 2020, which replaced the Payment of Gratuity Act, 1972 from 21 November 2025.
The gratuity amount can be substantial — an employee earning ₹60,000 per month in basic salary plus dearness allowance with 20 years of service is entitled to approximately ₹6,92,308 in gratuity. For senior employees with long tenures, gratuity can run into lakhs, making it one of the largest one-time payouts an employee receives during their career. Understanding how this amount is calculated helps you plan for career transitions, retirement, and financial goals.
Whether you are planning to switch jobs, approaching retirement, negotiating a compensation package, or simply curious about what your employer owes you after years of service, this calculator gives you the precise gratuity figure. Enter your details and see the breakdown instantly.
How Gratuity Is Calculated in India
Gratuity calculation in India follows a formula set out in the Code on Social Security, 2020 (section 53), which kept the formula of the old Payment of Gratuity Act, 1972. The tax treatment differs for government employees and for employees not covered by the law.
For Employees Covered Under the Gratuity Act (Private Sector):
Gratuity = (Last Drawn Salary x 15 x Years of Service) / 26
Where:
- Last Drawn Salary = Basic salary + Dearness Allowance (DA) at the time of leaving
- 15 = 15 days’ wages for each completed year of service (or part thereof exceeding 6 months)
- 26 = Number of working days in a month (as defined by the Act)
For Government Employees:
Gratuity = (Last Drawn Salary x 15 x Years of Service) / 30
The denominator is 30 instead of 26 because government rules consider 30 calendar days per month rather than 26 working days.
Example for Private Sector:
An employee with a last drawn basic salary plus DA of ₹50,000 per month and 15 years of service: Gratuity = (50,000 x 15 x 15) / 26 = ₹4,32,692
Example for Government Sector:
Same salary and tenure under government rules: Gratuity = (50,000 x 15 x 15) / 30 = ₹3,75,000
The difference between the two formulas means private sector employees receive a higher gratuity than government employees on the same salary and tenure, though government employees typically have separate retirement benefits.
Eligibility: Who Qualifies for Gratuity
The Payment of Gratuity Act applies to establishments with 10 or more employees, including factories, mines, oilfields, plantations, ports, railway companies, shops, and establishments. Once the Act applies to an establishment, it continues to apply even if the employee count drops below 10.
The 5-Year Rule:
The most important eligibility criterion is completion of 5 continuous years of service with the same employer. If you leave before completing 5 years, you are generally not entitled to gratuity. However, there are exceptions:
- Death or Disability: If an employee dies or becomes disabled during employment, gratuity is payable regardless of the length of service. For death, gratuity is paid to the nominee or legal heir.
- Rounding of Years: When the amount is worked out, a final part-year of more than 6 months counts as a full year, so 10 years and 7 months is paid as 11 years. For the 5-year eligibility test the law counts years of continuous service; some High Courts have accepted 4 years plus at least 240 days worked in the fifth year, but this is not settled, so the calculator asks for 5 full years. Fixed-term employees need only 1 year.
Important Clarification on Continuous Service:
The Supreme Court of India has clarified that interruptions in service due to authorized leave, layoffs, or lockouts do not break the continuity of service. Temporary breaks for illness, maternity, or other approved leaves do not reset the 5-year clock.
Maximum Gratuity Limit
For private-sector employees covered by the Payment of Gratuity Act, the maximum tax-exempt gratuity is ₹20,00,000 (₹20 lakh). Gratuity received by government employees is fully exempt from tax; for central government employees the maximum gratuity payable under their pension rules was raised to ₹25 lakh from January 2024, when dearness allowance reached 50%. For other employees, any gratuity above ₹20 lakh is taxable as salary income.
For senior employees in large organizations with high salaries and long tenures, the formula may produce a figure exceeding ₹20 lakh, but the employer is legally required to pay only up to the cap. However, many private companies, particularly in the IT sector and MNCs, pay gratuity above the statutory cap as a contractual benefit. In such cases, the excess amount may have different tax implications.
Tax Treatment of Gratuity:
Gratuity received by government employees is fully exempt from income tax.
For private sector employees covered under the Gratuity Act, the least of the following is exempt from tax:
- Actual gratuity received
- ₹20,00,000 (the statutory cap)
- 15 days’ salary for each completed year of service (calculated with 26-day divisor)
For employees not covered under the Act (those in organizations with fewer than 10 employees), the exemption calculation uses a half-month salary per year formula with a different computation. Use the Income Tax Calculator (Old vs New) to determine your tax liability on any taxable portion of gratuity.
Gratuity for Different Types of Employment
Full-Time Employees in Private Companies:
The standard formula applies. Most IT professionals, banking employees, manufacturing workers, and corporate employees fall under this category. The key variable is whether the company treats all allowances as part of basic salary for gratuity calculation or only basic plus DA. Companies that offer a lower basic salary (higher special allowances) effectively reduce the gratuity amount.
Contract and Fixed-Term Employees:
Under the Code on Social Security, in force from 21 November 2025, fixed-term employees become eligible for gratuity after one year of continuous service instead of five; permanent employees still need five years, except on death or disablement. The Code also calculates gratuity on a wider definition of wages, adding back allowances that exceed 50% of total pay. Sources differ on whether the one-year rule covers contracts that started before 21 November 2025, so confirm with your employer.
Seasonal Employees:
Employees working in seasonal establishments are eligible for gratuity after completing 5 seasons with the same employer. Service duration is calculated based on actual working days during each season.
Piece-Rate Workers:
For employees paid on a piece-rate basis, gratuity is calculated based on the average daily earnings over the last 3 months of service, multiplied by 15 days per year of service.
Gratuity and Your Retirement Planning
Gratuity forms one of the three pillars of retirement benefits for Indian salaried employees, alongside EPF and pension (NPS or employer pension scheme).
Estimating Your Gratuity at Retirement:
If you are currently 30 years old earning ₹40,000 basic plus DA and plan to retire at 60, your gratuity depends on your final salary. Assuming 7% annual salary growth, your basic plus DA at 60 would be approximately ₹3,05,000 per month. Gratuity = (3,05,000 x 15 x 30) / 26 = ₹52,98,077. However, the statutory cap of ₹20 lakh limits the actual payout.
This illustrates why relying on gratuity alone is insufficient for retirement. The capped amount represents only a fraction of what the formula calculates for long-tenured, high-salary employees. Supplement gratuity with robust EPF, PPF, and NPS contributions. Use the EPF Calculator, PPF Calculator, and NPS Calculator to build a complete retirement projection.
Gratuity as Part of CTC:
Many employers include gratuity as a component of Cost to Company (CTC). The annual gratuity allocation is typically calculated as (Basic + DA) x 15/26 x 1/12 = approximately 4.81% of basic plus DA per month. This amount is provisioned by the employer but only paid out when you leave after completing 5 years.
If you are a permanent employee and switch jobs before completing 5 years, you forfeit this benefit (fixed-term employees qualify after 1 year). This is an important consideration when evaluating job offers: the gratuity component of CTC only has value if you stay for at least 5 years.
Gratuity When Switching Jobs
Forfeiture for Less Than 5 Years: If a permanent employee leaves before completing 5 years of continuous service, no gratuity is due (fixed-term employees qualify after 1 year, and there is no minimum on death or disablement). The employer’s provisioned amount reverts to the company. This is effectively money you leave on the table.
Negotiating Gratuity During Job Change: When negotiating a new offer, factor in the gratuity you are leaving behind. If you have 4 years of service at your current employer, you are potentially walking away from a significant amount. Some companies offer a sign-on bonus to compensate for forfeited benefits.
Multiple Employments: Gratuity is employer-specific. Your service years do not carry over between employers. Starting at a new company resets the 5-year clock entirely. This means frequent job-hoppers (changing every 2-3 years) may never receive gratuity throughout their career.
Calculation When Leaving: If you are leaving a company and are eligible for gratuity, the employer must pay the amount within 30 days of it becoming payable. Delay attracts interest at the rate specified by the government (currently 10% per annum from the date it becomes due).
Gratuity Insurance and Trust
Employers can fund gratuity through two methods:
Group Gratuity Insurance: The employer purchases a group gratuity policy from an insurance company (LIC, ICICI Prudential, HDFC Life, etc.). Annual premiums are paid to build the fund. This is the most common method and provides tax benefits to the employer under Section 36(1)(v).
Gratuity Trust: The employer creates an approved gratuity trust and makes contributions to it. The trust invests the funds and pays gratuity to departing employees. This is more common in large organizations and PSUs.
Employees should note that the funding method does not affect their entitlement. Whether the employer uses insurance, a trust, or pays from the balance sheet, the employee’s gratuity amount is calculated using the same formula.
This calculator provides estimates based on FY 2025-26 tax slabs. Consult a Chartered Accountant before filing.
Frequently Asked Questions
How is gratuity calculated in India?
For private sector employees under the Gratuity Act: Gratuity = (Last Drawn Salary x 15 x Years of Service) / 26. Last Drawn Salary means basic plus DA. For employees not covered by the law, the tax-exempt amount uses half a month’s average salary per year of service instead. Service exceeding 6 months in the final year is rounded up to one full year.
When am I eligible for gratuity?
You are eligible after completing 5 continuous years of service with the same employer. Fixed-term employees are eligible after 1 year of service under the Labour Codes (in force 21 November 2025). Gratuity is also payable regardless of tenure in cases of death or disablement. Some courts have treated 4 years plus 240 days worked in the fifth year as 5 years, but this is not settled.
What is the maximum gratuity amount?
The maximum gratuity under the Code on Social Security, 2020 is ₹20,00,000 (₹20 lakh), the same as under the old Payment of Gratuity Act. Even if the formula produces a higher amount, the statutory payout is capped here. Some private companies pay above this cap as a contractual benefit.
Is gratuity taxable?
For government employees, gratuity is fully tax-exempt. For private sector employees, gratuity up to ₹20 lakh is exempt if it does not exceed the formula-calculated amount. Any amount above the exemption limit is taxable at your income tax slab rate.
Do I lose gratuity if I resign before 5 years?
Yes. If you are a permanent employee and leave before completing 5 years of continuous service, you forfeit your gratuity entitlement. Fixed-term employees qualify after 1 year. The provisioned gratuity amount reverts to the employer. This is an important factor when considering job changes.
Is gratuity part of CTC?
Many employers include gratuity in CTC, typically as approximately 4.81% of basic plus DA per month. However, this amount is only paid when you leave after completing 5 years. If you leave earlier, this CTC component provides no actual benefit to you.
What salary is used for gratuity calculation — basic or gross?
Gratuity uses “wages”: basic pay, dearness allowance and retaining allowance. HRA, conveyance, bonus, overtime and similar items are excluded, but under the Code on Social Security, 2020, if the excluded items add up to more than half of your total pay, the excess is added back to wages. So wages for gratuity are never less than 50% of total remuneration, and a very low basic salary no longer cuts your gratuity as much. Enter your total monthly pay in the calculator to apply this rule.
How soon must the employer pay gratuity after I leave?
The employer must pay gratuity within 30 days of it becoming payable (the date you leave, retire, or become disabled). Delay beyond 30 days attracts interest at the government-specified rate (currently 10% per annum) from the due date until the actual payment date.
Default rates shown are illustrative. Always verify current limits with your employer. Data accurate as of: November 2026
Gratuity under the Labour Codes: what the calculator does
Formula: wages × 15 × years ÷ 26, where a final part-year over 6 months counts as a year. Permanent employees qualify after 5 years of continuous service; fixed-term employees after 1 year of service under the contract (Industrial Relations Code, 2020, section 2(o)); nobody needs a minimum on death or disablement. If you enter total monthly pay, wages are raised to at least half of it.
Example: a fixed-term employee on ₹40,000 basic plus DA who completes 1 year gets ₹40,000 × 15 × 1 ÷ 26 = ₹23,077. A permanent employee on ₹30,000 basic with ₹1,00,000 total pay and 10 years gets wages of ₹50,000 and gratuity of ₹2,88,462.
Two points are not settled. Sources differ on whether the 1-year rule covers fixed-term contracts that started before 21 November 2025, and on how “pro rata” gratuity for fixed-term staff should treat part-years. Ask your employer which reading they use.
Tax: under the Income-tax Act, 2025, gratuity is covered by section 19 (old section 10(10)). Government employees’ gratuity is fully exempt; for others, up to ₹20 lakh is exempt.