Gratuity Calculator
Payment of Gratuity Act, 1972. Enter your last drawn Basic + DA.
Gratuity generally requires five years of continuous service; the condition is waived on death or disablement. Exemption under Section 10(10) is capped at ₹20,00,000 across your career.
How gratuity is calculated in India
Gratuity is a lump sum an employer pays for long service. It is governed by the Payment of Gratuity Act, 1972, and the formula is fixed — which means a gratuity figure is either right or wrong, not a matter of company policy.
For an employee covered by the Act:
Gratuity = Last drawn (Basic + DA) × 15 ÷ 26 × completed years of service
The 15 is fifteen days’ wages for each completed year. The 26 is the number of working days in a month the Act assumes — not 30, which is the single most common mistake in a manual calculation and inflates every figure by about 15%.
Where the years get rounded
Service is counted in completed years, and a part-year of six months or more rounds up. Seven years and seven months counts as eight. Seven years and five months counts as seven.
If your employer is not covered by the Act
Establishments with fewer than ten employees may fall outside it. Then the convention is different: half a month’s average salary for each completed year, using ÷ 30 rather than ÷ 26, and part-years do not round up. The calculator handles both.
Who is eligible
- Five years of continuous service is the general rule
- The five-year condition is waived on death or disablement
- It is payable on resignation, retirement or termination — not only on retirement, which is a widespread misconception
How much of it is tax free
For a private-sector employee covered by the Act, gratuity is exempt under Section 10(10) up to ₹20,00,000. Anything above that is added to salary income and taxed at slab rates.
The important detail most calculators skip: the ₹20 lakh limit is a lifetime aggregate, not per employer. If you received ₹8 lakh of exempt gratuity from a previous job, only ₹12 lakh of exemption remains for the rest of your career. The calculator above lets you enter what you have already claimed.
A worked example
An employee leaves after 7 years and 8 months with a last drawn Basic + DA of ₹52,000 a month.
- Completed years, after rounding 8 months up: 8
- ₹52,000 × 15 ÷ 26 × 8 = ₹2,40,000
- Below ₹20 lakh, so the whole amount is tax free
Had the same calculation used ÷ 30 instead of ÷ 26, it would have produced ₹2,08,000 — ₹32,000 short, and a dispute waiting to happen.
Frequently asked questions
Is gratuity calculated on basic salary or gross salary?
On last drawn Basic + Dearness Allowance only. HRA, conveyance, special allowance and bonus are not included, which is why gratuity is usually far smaller than people expect from their gross salary.
Do I get gratuity if I leave before five years?
Generally no. Five years of continuous service is the threshold, and it is waived only in the case of death or disablement.
Does 4 years and 7 months count as five years?
No. The rounding rule applies to completed years after eligibility is established, not to the eligibility threshold itself. Some High Court rulings have allowed 4 years 240 days in the fifth year to qualify, so if you are close to the line it is worth checking your own case rather than assuming.
Why divide by 26 and not 30?
Because the Act treats a month as 26 working days, excluding four weekly offs. Using 30 understates gratuity by roughly 15% and is the most common error in manual calculations.
Is gratuity taxable?
Up to ₹20 lakh it is exempt under Section 10(10) for private-sector employees covered by the Act. Above that, the excess is taxable at slab rates. The ₹20 lakh cap applies across your whole career, not per employer.
Can an employer pay more than the formula?
Yes. The Act sets a minimum, not a maximum. Anything paid above the formula is still subject to the same ₹20 lakh exemption ceiling for tax.
Getting it right every time, not once
A calculator settles one employee. The problem for a payroll team is settling every leaver correctly, with the gratuity feeding into the full and final settlement alongside leave encashment, notice period and TDS.
HivePayroll tracks gratuity as a liability head on the compliance dashboard and produces the full and final settlement statement from the same payroll year behind it. See onboarding and exit management, or book a free demo.
More tools: HRA exemption calculator · EPF calculator · income tax calculator
