Gratuity Calculator — Amount & Tax Exemption

Quick answer

If your employer is covered by the Payment of Gratuity Act, gratuity = 15 × last monthly basic + DA × years of service ÷ 26, where a part year above six months counts as a full year. You need at least five years of continuous service, except on death or disablement. Private employees get up to ₹20 lakh tax-free over their working life; government employees' gratuity is fully exempt.

How to use this gratuity calculator

The calculator needs six inputs. Keep your latest salary slip and your joining and leaving dates handy.

1. Is your employer covered by the Gratuity Act? Choose "Yes" if the organisation has 10 or more employees — this includes most companies, shops and establishments. Choose "No" only if your employer is genuinely outside the Act, for example a very small business, and pays gratuity by its own policy.
2. Last monthly basic + DA — your last drawn basic salary plus dearness allowance for one month. Do not use CTC, gross pay or in-hand salary. If your employer is not covered, enter the average monthly basic + DA of the last 10 months instead.
3. Years of service — completed years from joining to leaving.
4. Extra months — the months beyond those completed years, from 0 to 11. For someone who served 10 years and 8 months, enter 10 years and 8 months.
5. Government employee? Choose "Yes" for central or state government employees, whose gratuity is fully tax-free.
6. Gratuity actually received (optional) — the amount your employer paid or will pay. Leave it blank if you only want the formula figure; the calculator then assumes you received exactly that amount.

The result shows the gratuity as per the formula, the tax-free part and the taxable part. Below it you see the years counted, the formula used and the tax-free limit applied. If your employer is covered and you have entered fewer than five years, the calculator tells you that you are not yet eligible.

The gratuity formula explained

There are two formulas, depending on whether the Payment of Gratuity Act applies to your employer. This gratuity calculator uses the right one based on your first answer.

Employers covered by the Act

Gratuity = 15 × last drawn monthly salary × years of service ÷ 26

The idea is 15 days' wages for every year of service. A month is taken as 26 working days, so one day's wage is monthly salary ÷ 26, and 15 days' wages is about 57.7% of one month's salary. For each year you work, you earn a little over half a month's basic + DA as gratuity.

Years are rounded: if the extra period is more than six months, it counts as a full year; six months or less is ignored. So 10 years 7 months counts as 11 years, but 10 years 6 months counts as 10.

Employers not covered by the Act

Gratuity = 15 × average monthly salary of the last 10 months × completed years ÷ 30

This is half a month's average salary for each completed year. Only completed years count; the extra months are ignored. Because it divides by 30 instead of 26 and uses an average, it gives a lower figure than the Act formula for the same salary.

Strictly, an employer not covered by the Act has no legal duty to pay gratuity unless your contract or the company policy provides for it. The second formula is what the Income-tax Act uses to work out how much of such a payment is tax-free.

What "salary" means here

For gratuity, salary means basic pay plus dearness allowance. HRA, special allowance, bonus, overtime, commission (other than what the tax rules count) and reimbursements are left out. That is why gratuity can look small to someone with a high CTC but a low basic.

Eligibility rules under the Gratuity Act

The ₹20 lakh ceiling is the most the Act requires an employer to pay. An employer can pay more under its own policy or your contract; the extra is then a matter of the agreement, and its tax treatment is explained below.

The calculator checks only the years you enter against the five-year rule. Questions such as whether a break in service or a period of leave counts as continuous service depend on the facts, and courts have looked at them case by case. If you are a few months short of five years, ask your employer how they count your service before assuming you are not eligible.

Labour codes: what is changing

The Code on Social Security, 2020, which brings the Payment of Gratuity Act and other labour laws under one code, was brought into force in November 2025. It keeps the 15-days-per-year approach. Two changes matter most for gratuity: fixed-term employees become eligible after one year of service instead of five, and the definition of wages is wider, so that if allowances form more than half of total pay, the excess is added back to wages.

How each employer applies these changes depends on the rules and its own payroll practice. The calculator follows the formulas described above; if you are a fixed-term employee or your basic is a small part of your pay, confirm the figure with your HR team.

How much gratuity is tax-free

Gratuity on retirement or leaving a job is exempt under Section 10(10) of the Income-tax Act, within limits. The exemption is the same in the old and new regimes.

Anything received above the tax-free amount is added to your salary income for the year and taxed at your slab rate. The calculator works this out using the ₹20 lakh limit set in the site's tax rules.

Note on law: the Income-tax Act, 2025 applies from 1 April 2026 and, from tax year 2026-27, renumbers sections such as 10(10) and 89. The calculator keeps the familiar section numbers and applies the limits shown here.

The ₹20 lakh limit is for your whole career

The ₹20 lakh exemption is not per employer. If you claimed a gratuity exemption from an earlier job, that amount reduces the limit available now. The calculator does not know your past claims, so if you received tax-free gratuity before, subtract it from ₹20 lakh yourself and compare.

Gratuity received while still in service

If a private employer pays you gratuity while you continue in the same job, it is fully taxable as salary. The exemption applies to gratuity received on retirement, resignation, termination, death or disablement.

Worked examples

Each example below uses the gratuity calculator's own formula, so you can enter the same numbers in the calculator and match the result. Amounts are rounded to the nearest rupee.

Example 1: Covered employer, rounding up

Ritu's last basic + DA is ₹60,000 a month. She resigns after 10 years and 8 months. The extra 8 months is more than six, so 11 years count.

• Gratuity = 15 × ₹60,000 × 11 ÷ 26 = ₹3,80,769
• Tax-free: ₹3,80,769 (below ₹20 lakh and equal to the formula)
• Taxable: nil

Had she left at 10 years and 5 months, only 10 years would count and her gratuity would be ₹3,46,154 — ₹34,615 less. Timing a resignation just past the six-month mark can make a real difference.

Example 2: Employer not covered by the Act

Amit works for a small firm outside the Act that pays gratuity by policy. His average basic + DA for the last 10 months is ₹50,000 and he has served 12 years and 9 months. Only 12 completed years count.

• Gratuity = 15 × ₹50,000 × 12 ÷ 30 = ₹3,00,000
• If the firm pays ₹3,00,000, all of it is tax-free.

Example 3: High salary, long service

Suresh's last basic + DA is ₹2,50,000 a month and he retires after 22 years from a private company.

• Formula amount = 15 × ₹2,50,000 × 22 ÷ 26 = ₹31,73,077
• The Act requires payment only up to ₹20 lakh. If the company pays ₹20 lakh, all of it is tax-free.
• If the company's policy pays the full ₹31,73,077, then ₹20,00,000 is tax-free and ₹11,73,077 is taxable as salary.

Example 4: Employer pays more than the formula

Kavita's last basic + DA is ₹80,000 and she has exactly 15 years of service. The formula gives ₹6,92,308, but her company pays ₹9,00,000 as a goodwill gesture.

• Tax-free: lowest of ₹9,00,000, ₹20,00,000 and ₹6,92,308 = ₹6,92,308
• Taxable: ₹9,00,000 − ₹6,92,308 = ₹2,07,692

Enter ₹9,00,000 in "gratuity actually received" and the calculator shows this split.

Example 5: Exemption already used in an earlier job

Manoj received ₹8,00,000 of tax-free gratuity when he left his first employer. He now leaves his second employer after 20 years with a last basic + DA of ₹1,20,000.

• Formula amount = 15 × ₹1,20,000 × 20 ÷ 26 = ₹13,84,615
• Remaining lifetime limit = ₹20,00,000 − ₹8,00,000 = ₹12,00,000
• Tax-free: ₹12,00,000; taxable: ₹1,84,615

The calculator alone would show the whole ₹13,84,615 as tax-free, because it uses the full ₹20 lakh limit. Adjust for earlier claims yourself.

Planning around gratuity

How gratuity grows with service

Under the Act formula, each counted year adds 15/26 of a month's basic + DA. The table shows gratuity as a multiple of your last monthly basic + DA, and the monthly basic + DA at which the formula reaches ₹20 lakh.

So someone with 20 years of service and a basic + DA of ₹1 lakh a month can expect about ₹11.5 lakh. Someone with 30 years needs a basic + DA above roughly ₹1.16 lakh before the formula crosses the ₹20 lakh ceiling.

Gratuity in your CTC

Many offer letters show a gratuity line in the CTC, often around 4.81% of basic. That figure is simply 15/26 of a month's basic spread over 12 months: 15 ÷ 26 ÷ 12 ≈ 4.81%. It is not paid to you monthly or yearly.

You receive gratuity only when you leave after becoming eligible, or on death or disablement. If you leave a covered employer before five years, the gratuity part of your CTC is generally never paid. Keep this in mind when comparing offers or calculating your in-hand pay; our salary take-home calculator shows the monthly figure.

Some employers buy a group gratuity policy from an insurer to fund the liability. That does not change your entitlement; the employer remains responsible for paying the correct amount.

Watch the six-month mark

For covered employers, leaving at five years and seven months counts as six years, while five years and six months counts as five. If you are close to a threshold, check your exact dates against your joining date before fixing your last working day. Notice periods count as service if you are on the rolls.

Watch the five-year mark

Under the Act, leaving at four years and ten months can mean no gratuity at all, while staying a little longer gives about 2.9 months' basic. If you are near five years, this deserves thought before you resign.

Use the calculator for "what if" dates

Enter your service as it will stand on two or three possible leaving dates and compare the results. The difference between counting, say, 9 and 10 years is 15 days' wages — a little more than half a month's basic + DA — added to your payout.

Basic pay matters

Gratuity depends only on basic + DA. A salary structure with a higher basic gives higher gratuity (and PF), but lower take-home in some cases. When you negotiate a restructure, look at the long-term effect on gratuity, not just monthly pay.

What happens to the taxable part

Your employer adds the taxable gratuity to your salary and deducts TDS on it. It then appears in Form 16 along with the exempt portion under Section 10(10).

Because gratuity is earned over many years but received in one year, a large taxable amount can push you into a higher slab. Relief under Section 89 can reduce this extra tax. To claim it, you file Form 10E on the income tax portal before filing your return. The calculation compares tax with and without spreading the income, so it is worth getting it checked.

Gratuity often comes along with leave encashment in the final settlement. That has its own exemption of up to ₹25 lakh for non-government employees; work it out with our leave encashment tax calculator.

Gratuity in your income tax return

In your return, the full gratuity received is part of gross salary, and the exempt amount is shown under exempt allowances as gratuity under Section 10(10). The taxable remainder stays in salary. The figures should match your Form 16; if they do not, keep the working that supports your claim.

If you received gratuity and are now retired, check whether you still have other income such as pension, interest or rent, and compare both regimes. Our income tax calculator shows which one costs less once the taxable gratuity is included.

Government, PSU and other employees

Central and state government employees

Their gratuity is paid under their own service and pension rules, not the Gratuity Act, and it is fully exempt from income tax. Select "Yes" for government employee and the calculator shows the whole amount received as tax-free. For the gratuity amount itself, follow the figure in your pension or retirement order.

PSU and public sector bank employees

Employees of government-owned companies and banks are not treated as government employees for this exemption. Their tax-free gratuity is worked out like private employees': covered by the Act in most cases, subject to the ₹20 lakh limit. Select "No" for government employee.

Employees with two jobs in a year

If you received gratuity from two employers in the same year, the combined tax-free amount still cannot exceed the ₹20 lakh lifetime limit. Work out each employer's formula figure separately, then cap the total.

Checking your employer's gratuity figure

1. Confirm the salary base. It should be your last drawn basic + DA (or the 10-month average if the employer is outside the Act), not gross pay.
2. Count your service from the joining date in your appointment letter to your last working day, including the notice period.
3. Apply the rounding: more than six months extra becomes a full year for covered employers.
4. Enter these in the calculator, along with the amount shown in your full and final settlement in "gratuity actually received".
5. Compare. If the employer's figure is lower than the formula, ask for their working in writing. If it is higher, the excess over the formula is taxable, and TDS should reflect that.

Running the gratuity calculator a few months before your last day gives you time to raise questions before the settlement is final. Most differences come from a different joining date, a missed DA component or rounding. They are usually settled quickly once both sides compare the same numbers.

Documents to keep for your final settlement

• Appointment letter showing your joining date
• Resignation acceptance or retirement letter and relieving letter
• Last 10 to 12 months' salary slips, showing basic and DA
• Full and final settlement statement showing gratuity, leave encashment and TDS
• Form 16 for the year you left, showing exempt and taxable amounts
• Details of any tax-free gratuity received from earlier employers

Check that the settlement uses the right last salary and rounded years before you sign it. A difference of one year of service or a wrong salary base is easier to fix before payment than after.

Death, disablement and forfeiture

Gratuity on death or disablement

If an employee dies or becomes disabled due to accident or disease, gratuity is payable even if five years are not complete. On death, it is paid to the nominee, or to the legal heirs if there is no nomination.

The same formula applies, using the service actually completed. For this case, the calculator's "not eligible yet" message for under five years does not apply — calculate it with the formula directly: 15 × last salary × years ÷ 26.

Every employee should file a nomination with the employer. It saves the family time and paperwork when gratuity has to be claimed after a death.

When gratuity can be reduced or withheld

Under the Act, gratuity can be forfeited only in limited cases tied to termination for misconduct — for example, to the extent of damage or loss caused to the employer's property, or wholly for riotous or disorderly conduct, violence, or an offence involving moral turpitude committed in the course of employment. An employer cannot simply refuse to pay gratuity because you resigned or joined a competitor.

If your employer delays payment beyond 30 days or disputes the amount, the Act provides for a claim before the controlling authority appointed under it. Keep your appointment letter, salary slips and relieving letter as proof of service and salary.

Gratuity, PF and leave encashment compared

All three usually arrive together when you leave a job, but they follow different rules.

Your PF balance and withdrawal options are on the EPFO website. Check all three amounts in your settlement letter separately, because a mistake in one does not show up in the others.

Common mistakes when calculating gratuity

• Using gross salary or CTC. Only basic + DA counts. Using gross pay can double the figure.
• Not rounding correctly. Under the Act, more than six months rounds up; exactly six months does not. For employers outside the Act, only completed years count.
• Dividing by 30 for a covered employer. Covered employers use 26. The ÷30 formula is only for those outside the Act.
• Assuming gratuity in CTC is paid every year. Many CTCs show a gratuity component, but it is paid only when you leave after becoming eligible.
• Forgetting the lifetime limit. If you claimed exempt gratuity before, the ₹20 lakh limit is reduced.
• Treating all gratuity as tax-free. For private employees, any amount above the formula or above ₹20 lakh is taxable.
• Ignoring Form 10E. Relief under Section 89 on taxable gratuity is available only if Form 10E is filed before the return.

Get it checked by an expert

Final settlements mix gratuity, leave encashment, notice pay and arrears, and each has its own tax rule. A TaxCaller tax expert can check your gratuity working, apply the right exemption and Section 89 relief, and file your return. You are told the fee upfront before any work starts, and the first call is free. Start with our income tax filing service.