How is gratuity calculated in India?

For employees covered under the Payment of Gratuity Act, 1972: Gratuity = (Last drawn basic + DA) × 15 × years of service ÷ 26.

Who is eligible for gratuity in India?

Any employee who has completed 5 or more years of continuous service with the same employer is eligible. 5-year requirement waived on death or disability.

Is gratuity tax-free in India?

For private employees covered by the Gratuity Act, gratuity up to ₹20 lakhs is tax-exempt. Amounts above are taxable as per the employee's income slab.

How is gratuity calculated for non-covered employees?

For non-covered employees, the formula is: Gratuity = (Last drawn basic + DA) × 15 × years of service ÷ 30.

When is gratuity paid?

On retirement, resignation (after 5+ years), termination, death, or disability. Must be paid within 30 days.

Gratuity Calculator India 2026: Free Tool

Type two numbers into the live calculator above. Your last drawn Basic plus DA, and the years you've put in. The tool returns the gratuity payable under the Payment of Gratuity Act 1972, flags the ₹20 lakh statutory cap, and tells you how much stays tax-exempt under Section 10(10). For the full statute walkthrough with forfeiture rules and four worked examples, head to the Gratuity Calculation in India guide.

What the calculator does

You enter your last drawn Basic + DA (monthly, in rupees) and your completed years of service. Six months and above in the final year rounds up. Back come three numbers: the gratuity on the standard 15/26 formula, a flag if it crosses the ₹20 lakh ceiling, and the Section 10(10)(ii) tax-exempt portion for private-sector employees with any taxable excess.

The formula in plain English

Two versions, depending on whether your employer is covered by the Act.

Covered (10 or more employees):

Gratuity = (Last drawn Basic + DA) × 15 × Completed Years / 26

The 26 comes from POGA's 26-day month. Weekly offs are stripped out, so a working month is treated as 26 paid days.

Not covered (fewer than 10 employees, or contractual gratuity):

Gratuity = (Basic + DA) × 15 × Completed Years / 30

The "salary" in both formulas is Basic plus DA only. HRA, special allowance, conveyance, and reimbursements are out. And it's the last drawn figure on your exit month, not an average.

Worked examples

Example 1: 8 years, Basic + DA ₹50,000

50,000 × 15 × 8 / 26 = ₹2,30,769
Sits well below the ₹20 lakh cap. For a private-sector employee, the entire ₹2,30,769 is exempt under Section 10(10)(ii).

Example 2: 30 years, Basic + DA ₹1,80,000

1,80,000 × 15 × 30 / 26 = ₹31,15,384
POGA caps the statutory payout at ₹20,00,000, so the employer pays ₹20 lakh
Tax exemption is the least of (a) actual received ₹20 lakh, (b) statutory ceiling ₹20 lakh, (c) formula amount ₹31.15 lakh. Least is ₹20 lakh, so the full payout escapes tax. Any ex-gratia paid above the cap is taxed as salary in the year of receipt.

Eligibility: the 5-year rule and its exceptions

Gratuity becomes payable on resignation, retirement, or termination after five years of continuous service with the same employer. Walk out at four years eleven months and you usually walk out empty-handed.

One nuance softens that line. The Madras High Court, reading Section 2A of the Act, has held that 4 years plus 240 days in the fifth year counts as five completed years. Most large employers and tribunals follow this view in 2026. If you're at the borderline, get a written position from HR before signing the relieving letter.

The five-year minimum is waived for death and permanent disablement. Gratuity is paid to the legal heirs or to the disabled employee from day one.

The ₹20 lakh cap and what happens above it

Since March 2018 the statutory ceiling has stood at ₹20 lakh. The formula can throw up a higher number for senior people with long tenure and large Basic, but the employer's legal obligation tops out at twenty lakh. Anything beyond that is voluntary ex-gratia, taxable as salary.

Section 10(10)(ii) caps the income-tax exemption at the same ₹20 lakh aggregate over a lifetime. Claimed gratuity exemption from a previous employer? Your remaining headroom shrinks accordingly. Government employees fall under Section 10(10)(i) and get full exemption with no ceiling.

FAQ

Does notice period count toward gratuity tenure?

Yes, if you serve it. Notice served is part of continuous service, so use the last working day on your relieving letter. Notice bought out by salary in lieu also counts in most readings.

Is the formula on Basic + DA, or just Basic?

Basic plus Dearness Allowance only. Many private-sector salary structures don't have a DA component, in which case it's Basic alone. HRA, special allowance, conveyance, LTA, bonus, and reimbursements stay out.

What if I worked across two or three companies?

Gratuity is per employer. Tenure is not portable. The ₹20 lakh tax exemption, however, is a lifetime aggregate across all employers.

Is gratuity taxed?

For private-sector employees the exempt portion is the least of actual received, the ₹20 lakh ceiling, and the 15/26 formula amount on last drawn Basic + DA. Anything above the least is taxed as salary. Government employees get full exemption under Section 10(10)(i).

When must the employer pay it?

Within 30 days of the date it becomes payable, usually your last working day. Delays attract simple interest at the central-government-notified rate, currently around 10 percent per annum.

Beyond the calculator

For a quick personal number the tool above is enough. HR heads sizing the gratuity liability for the whole company or running a full-and-final settlement should read the Gratuity Calculation in India 2026 guide for forfeiture rules and the corner cases tribunals see most often.

Indian HRM provisions gratuity month by month for every eligible employee, applies the 26-day formula on exit, and tracks the cap and Section 10(10) exemption inside F&F. Foundation plan is ₹49 per employee per month with a free 3-month trial. See the payroll software for India page for the feature list.