Gratuity Calculator 2026

Calculate your gratuity amount instantly. Enter your last drawn Basic + DA salary and years of service. Updated with the latest ₹20 lakh tax-free limit (Section 10(10) of Income Tax Act).

📖What is gratuity?

Gratuity is a lump-sum payment your employer gives you when you leave the company after working for 5 or more years. Think of it as a reward for long and loyal service. The word 'gratuity' literally means a gift — but in India, it's not optional. It's a legal entitlement under the Payment of Gratuity Act, 1972.

The law applies to every factory, mine, oilfield, plantation, port, railway, and any establishment with 10 or more employees. Once an establishment is covered, it stays covered even if the employee count drops below 10 later. This means most organized sector employees in India — IT companies, banks, manufacturing, retail chains — are all covered.

Gratuity is paid entirely by the employer, not deducted from your salary. Unlike EPF where both you and your employer contribute, gratuity comes from the employer's pocket. Some employers set aside a gratuity fund, others pay from their general reserves when an employee leaves.

✅Who is eligible for gratuity?

You are eligible for gratuity if you have completed 5 or more years of continuous service with the same employer. The employer must be covered under the Payment of Gratuity Act (10+ employees at any point).

There are two important exceptions where gratuity is payable even without completing 5 years. First, if an employee dies while in service — the nominee receives gratuity regardless of tenure. Second, if an employee becomes disabled due to disease or accident — gratuity is payable immediately.

Contract employees, temporary workers, and fixed-term employees are also eligible if they complete 5 years of continuous service with the same principal employer. The Supreme Court has consistently upheld this interpretation.

4 years and 11 months of service = zero gratuity. The 5-year rule is absolute. Plan your resignations carefully around this milestone — one extra month can mean lakhs of difference.

🧮How the gratuity formula works — with examples

Let's walk through three real-world examples to understand exactly how much gratuity you'd receive at different salary and tenure levels.

Example 1 — Entry-level IT employee: Basic + DA = ₹30,000/month, 5 years of service. Gratuity = (30,000 × 15 × 5) ÷ 26 = ₹86,538. Entirely tax-free.

Example 2 — Mid-career manager: Basic + DA = ₹80,000/month, 15 years. Gratuity = (80,000 × 15 × 15) ÷ 26 = ₹6,92,308. Still entirely tax-free.

Example 3 — Senior executive: Basic + DA = ₹2,50,000/month, 25 years. Gratuity = (2,50,000 × 15 × 25) ÷ 26 = ₹36,05,769. Here, ₹20 lakh is tax-free and ₹16,05,769 is taxable at your slab rate.

💰Gratuity taxation rules 2026

Gratuity taxation differs based on whether you're a government employee, private sector employee covered by the Act, or a private employee not covered by the Act.

Government employees — gratuity is fully exempt from income tax. No limit. Whether you receive ₹5 lakh or ₹25 lakh, it's 100% tax-free.

Private employees covered under the Act — the least of three amounts is tax-free: (a) ₹20 lakh, (b) actual gratuity received, (c) 15 days' salary × completed years of service. Any excess is taxed at your slab rate.

Private employees NOT covered under the Act — the least of three amounts is exempt: (a) ₹20 lakh, (b) actual gratuity received, (c) half-month salary × completed years. The key difference is that 'salary' here includes Basic + DA + commissions.

⚖️Private sector vs government — key differences

The calculation formula itself differs. Private sector uses 15/26 (15 days' salary ÷ 26 working days). Government uses: (Basic + DA) × qualifying service (in half-years) ÷ 4. The government formula is slightly more generous for the same salary and tenure.

The maximum payable also differs. Private sector has no cap on the calculated amount (only the tax-free portion is capped at ₹20 lakh). Government caps the total payable at ₹25 lakh — but it's fully tax-free.

One important difference: government uses 'qualifying service' counted in completed 6-month periods. So 10 years and 7 months = 21 half-year periods. Private sector simply counts completed years (10 years and 7 months = 10 years).

🏢Edge cases most calculators miss

Seasonal employees: If you work 6 months per year (e.g., in tourism, agriculture), you become eligible after completing 5 seasons of work, even though calendar time may be 8-10 years.

Merger or acquisition: If Company A is acquired by Company B, and you continue working, your service is treated as continuous from the original join date at Company A. You don't restart the 5-year clock.

Gratuity during notice period: Your notice period counts as part of your service. If you've completed 4 years and 10 months and serve a 2-month notice, you've completed 5 years and are eligible for gratuity.

Garden leave: If your employer puts you on paid garden leave, that period also counts toward your total service for gratuity purposes.

📋How to claim gratuity — step by step

Step 1: On your last working day, submit Form I (Application for Gratuity) to your employer. The form requires your name, address, department, date of joining, date of leaving, and reason for leaving.

Step 2: The employer must issue Form L (Notice of determination of gratuity) within 15 days, stating the gratuity amount. If you disagree with the amount, you can file an objection with the Controlling Authority.

Step 3: The employer must pay gratuity within 30 days of it becoming due. If delayed beyond 30 days, interest is payable at 10% per annum.

If employer refuses: File a complaint with the Labour Commissioner (Controlling Authority) of your district. You can also approach the labour court if the Authority's order is unsatisfactory.

📚Official sources and further reading

Payment of Gratuity Act, 1972 — the primary legislation. Full text available at labour.gov.in.

Section 10(10) of Income Tax Act — governs gratuity taxation. Refer to incometaxindia.gov.in for the latest amendments.

Notification S.O. 1420(E) dated 29 March 2019 — increased the tax-free limit from ₹10 lakh to ₹20 lakh for private sector employees.

Last reviewed: April 2026 • This page is for informational purposes only and does not constitute legal or tax advice. Consult a qualified professional for your specific situation.

📊Gratuity under the new Labour Code 2025

The new Labour Code on Social Security proposes significant changes to gratuity. The most impactful: the 5-year requirement may be reduced to just 1 year for fixed-term contract employees. This would make millions of gig workers, contract staff, and short-tenure employees eligible for gratuity for the first time.

Another proposed change is the definition of wages for gratuity calculation. Under the new code, wages must be at least 50% of CTC. Companies can no longer structure salary with a very low basic (20-30% of CTC) to reduce gratuity liability. If Basic + DA is forced to be 50% of CTC, your gratuity automatically doubles compared to current low-basic structures common in IT companies.

The new code also proposes a universal social security fund covering gratuity for unorganized workers, platform workers (delivery, ride-hailing), and gig workers. However, implementation remains uncertain — the codes were passed in Parliament in 2020 but states are still notifying rules. Until implemented, the Payment of Gratuity Act 1972 continues to apply.

💡Common gratuity mistakes to avoid

Mistake 1 — Including HRA in the calculation: Gratuity is calculated only on Basic + DA. Many employees assume their gross salary or CTC is the base. If your CTC is ₹15 lakh but Basic + DA is only ₹5 lakh, gratuity is calculated on ₹5 lakh — not ₹15 lakh. Always check your payslip for the exact Basic + DA figure.

Mistake 2 — Counting partial years: If you worked 7 years and 4 months, gratuity is calculated for 7 years only. However, if you worked 7 years and 6 months or more, it rounds up to 8 years — the Act says "for every completed year of service or part thereof in excess of six months."

Mistake 3 — Not claiming on time: You must apply for gratuity within 30 days of it becoming due. While late claims are accepted, delays beyond 5 years can be rejected. File Form I on your last day to protect your rights.

Mistake 4 — Forgetting the cumulative limit: The ₹20 lakh tax-free limit is cumulative across your entire career, not per employer. If you received ₹8 lakh tax-free from your first job, only ₹12 lakh remains tax-free from future employers.

🔢Gratuity for different scenarios

Private school teacher: Teachers in private schools with 10+ staff are covered. A teacher with ₹45,000 Basic + DA retiring after 30 years gets: (45,000 × 15 × 30) ÷ 26 = ₹7,78,846. Fully tax-free.

Employee death in service: An employee with ₹60,000 Basic + DA dies after 3 years. Despite not completing 5 years, the nominee is eligible. Gratuity = (60,000 × 15 × 3) ÷ 26 = ₹1,03,846. Full amount goes to nominee tax-free. Additionally, EDLI insurance benefit of up to ₹7 lakh may apply.

Termination for misconduct: An employee with 12 years of service is terminated for damaging company property worth ₹2 lakh. Employer can forfeit gratuity only to the extent of damage — ₹2 lakh. If calculated gratuity is ₹5 lakh, employee still receives ₹3 lakh.

Freelancer/consultant: Independent contractors are NOT covered under the Gratuity Act, even if they work exclusively for one client for 10+ years. The Act covers only employees — defined as persons employed for wages. If your engagement letter says "contract for services" (not "contract of service"), you are likely not covered.

❓Frequently asked questions