Gratuity Calculator (2026)

Gratuity Formula: Covered vs Not Covered by the Act

Almost every gratuity calculator online applies one formula. There are actually two, and picking the wrong one changes your answer by around 15%. The difference is whether the Payment of Gratuity Act, 1972 applies to your employer:

On ₹60,000 salary and 12 years 8 months of service, the covered formula gives ₹4,50,000 and the uncovered one gives ₹3,60,000 — a gap of ₹90,000 caused purely by the divisor and the rounding rule. If you are unsure which applies, count the headcount: 10 or more, and you are covered.

What the New Labour Codes Changed (From 21 November 2025)

India's four labour codes came into force on 21 November 2025, and gratuity now sits under Section 53 of the Code on Social Security, 2020 rather than the standalone 1972 Act. The 15/26 formula survived intact. Two things around it did not.

1. The wage base got wider. The codes define wages inclusively — everything your employer pays is wages unless it falls inside a short list of exclusions. Critically, those excluded allowances cannot exceed 50% of total remuneration. If they do, the excess is added back into wages. Indian salary structures have spent two decades shrinking basic pay and inflating special allowance precisely to keep gratuity and PF low. That arbitrage is now closed, and employees with allowance-heavy CTCs get a materially bigger gratuity.

2. Fixed-term employees qualify after one year. Previously a fixed-term worker who served three years got nothing, because they never crossed five. Under the codes they receive pro-rata gratuity after just one year of continuous service. The five-year rule still applies to permanent employees.

One caveat worth stating plainly: the change applies prospectively from 21 November 2025. It does not retrospectively revalue service you rendered before that date, and employers are still working through how to restate wage components. If your payslip has not changed, ask HR what your gratuity wage base now is — the answer may be worth several lakh over a full career.

Gratuity Eligibility: The 5-Year Rule and Its Exceptions

Gratuity becomes payable on superannuation, retirement, resignation, or death or disablement due to accident or disease. The general condition is five years of continuous service — but there are more exceptions than most people realise:

• Death or disablement: the five-year rule is waived entirely. Gratuity is payable even if the employee served a single year, and it goes to the nominee or legal heir.
• Fixed-term employees: pro-rata gratuity after one year under the labour codes.
• 4 years and 240 days: several High Courts have held this qualifies as five years. It is a genuine argument, not a settled national rule — expect to have to press it.
• Resignation counts. You do not have to retire. Quitting after five years earns full gratuity, and no employer may withhold it because you left for a competitor or skipped notice period.
• Continuous service survives breaks caused by sickness, accident, authorised leave, layoff, strike or lockout that was not your fault.

The rounding rule deserves its own warning. Because a part-year above six months rounds up, service of 6 years 7 months is paid as 7 years while 6 years 6 months is paid as 6. On a ₹60,000 salary that single month is worth about ₹34,600. If you are anywhere near that line, check the calculator above before you hand in your resignation.

Gratuity Ready Reckoner by Salary and Years of Service

Gratuity payable for employees covered by the Act, using the 15/26 formula on last drawn Basic + DA. Computed with the same engine as the calculator above.

Notice how rarely the ₹20 lakh ceiling actually bites. Even at ₹1 lakh of Basic + DA across 30 years, gratuity lands at ₹17.3 lakh. You need roughly ₹1.15 lakh of monthly basic and 30 years of service before the cap becomes your binding limit — which is why the ceiling matters far less than the wage base does.

Worked Example: Gratuity Calculation Step by Step

Rohit resigns from a company with 400 employees. His last drawn Basic + DA is ₹60,000 and he served 12 years and 8 months.

Had Rohit left four months earlier at 12 years 4 months, his service would have stayed at 12 years and his gratuity would have been ₹4,15,385 — ₹34,615 less for four months of work. Had his employer been outside the Act, the divisor of 30 and the loss of rounding would have brought him down to ₹3,60,000.

Is Gratuity Taxable? Section 10(10) Explained

Gratuity is exempt from income tax under Section 10(10) of the Income Tax Act, but the exemption works differently for three groups of employees:

The detail almost everyone gets wrong: ₹20 lakh is a lifetime ceiling, not a per-employer one. Claim ₹9 lakh tax-free at one job and only ₹11 lakh of exemption remains for the rest of your career. Over three or four employers across thirty years, that adds up faster than people expect.

Anything above the exempt amount is taxed as salary income at your slab rate — which makes your regime choice relevant in a year you receive a large gratuity. Model it in the Income Tax Calculator FY 2026-27 or compare regimes in the Old vs New Tax Regime Calculator.

Central Government Employees: Retirement and Death Gratuity

Central government employees are not covered by the Payment of Gratuity Act at all. Their gratuity follows the CCS (Pension) Rules and the 7th Pay Commission, and the arithmetic is different: one-fourth of Basic Pay plus DA for each completed six-monthly period of qualifying service, subject to a maximum of 16.5 times emoluments.

The ceiling rose from ₹20 lakh to ₹25 lakh with effect from 1 January 2024, triggered by the 7th CPC rule that raises the cap 25% each time Dearness Allowance crosses 50%. A minimum of five years of qualifying service is required for retirement gratuity, and the whole amount is exempt from income tax.

Death gratuity follows a separate sliding scale based on length of service, from 2 times emoluments for under one year up to 20 times for 20 years or more, and carries no minimum service requirement. The calculator on this page applies the private-sector formula, so central government employees should use the official Pensioners' Portal calculator for an exact figure.

When an Employer Can Legally Withhold Gratuity

Gratuity is a statutory right, not a discretionary bonus, and the grounds for withholding it are narrow. Section 4(6) allows forfeiture only in these situations:

• To the extent of damage or loss caused by your wilful act, omission or negligence — and only up to the value of that loss, not the whole amount.
• Wholly or partly if your services were terminated for riotous or disorderly conduct or any act of violence.
• Wholly or partly if terminated for an offence involving moral turpitude committed in the course of employment.

Everything else is not a valid ground. Not serving your notice period, joining a competitor, poor appraisal ratings, an unresolved handover, or the company simply being short of cash are all outside Section 4(6). If gratuity is withheld without one of the above, the remedy is a written application in Form I, then a complaint to the Controlling Authority under the Act, which can order payment with interest.

How and When Gratuity Gets Paid

1. Apply in Form I within 30 days of gratuity becoming payable. In practice most employers process it with the full-and-final settlement, but a written application protects you.
2. The employer issues Form L within 15 days, stating the amount payable and the date of payment.
3. Payment must be made within 30 days of it becoming payable, in cash, demand draft or bank transfer.
4. Delay attracts simple interest at 10% per annum from the due date until payment, unless the delay was caused by the employee.
5. If refused, escalate to the Controlling Authority under the Act. The claim is time-barred after one year in principle, though delay can be condoned for sufficient cause.

File a nomination in Form F when you join, and update it after marriage. Without a valid nomination, gratuity on death has to go through succession formalities, which can delay payment to your family for months at exactly the wrong moment.

Mistakes That Cost People Gratuity

• Using gross salary or CTC instead of Basic + DA. This inflates the estimate badly and sets up a disappointment at settlement time.
• Resigning just short of the six-month rounding line. Leaving at 7 years 5 months instead of 7 years 7 months costs a full year of gratuity for two months of work.
• Assuming the ₹20 lakh exemption resets with each employer. It is a lifetime limit, and the second or third large gratuity of a career is where the tax bill appears.
• Believing gratuity is forfeited if you resign without notice. It is not. Notice-period disputes are a separate contractual matter and cannot be set off against a statutory gratuity claim.
• Treating gratuity as part of CTC that you have already earned. Many offer letters show it in CTC, but you receive nothing at all if you leave before five years.
• Never filing a nomination. Form F takes five minutes and is the difference between a fast payout and a succession-certificate ordeal for your family.

Gratuity is genuine retirement money, so it belongs in a plan rather than a current account. Once it lands, see what it does to your corpus in the Retirement Calculator, or park it where it compounds — PPF, NPS and a lumpsum investment are the usual homes for it.

How to Use This Gratuity Calculator

1. Enter your last drawn Basic + DA. Take it straight from your payslip — not CTC, not gross. If your payslip changed after November 2025, use the new wage figure.
2. Set your years and additional months. The months matter: above six rounds your service up a full year if the Act covers you.
3. Confirm whether the Act covers your employer. Ten or more employees means yes, which is the right answer for most people.
4. Pick permanent or fixed-term. Fixed-term contracts qualify after one year instead of five.
5. Read the result and the working. You get the gratuity payable, the tax-free portion under Section 10(10), the exact formula applied, and — if you are near a rounding boundary — how much staying a little longer is worth.

Gratuity is only one part of what you walk away with. Your EPF balance and any HRA exemption for the final year both affect your settlement, and the labour codes moved the wage base for all three at once.

Frequently Asked Questions — Gratuity