Gratuity Calculator - Payment of Gratuity Act 1972

Gratuity is a lump sum benefit paid by an employer to an employee as a token of appreciation for long service, and it forms a significant part of your retirement and separation benefits.

Reviewed by: CalcMojo Editorial Team

This gratuity calculator computes your gratuity entitlement based on your last drawn salary, years of service, and type of employment (government or private sector) under the Payment of Gratuity Act, 1972.

The gratuity amount can be substantial — an employee earning ₹60,000 per month in basic salary plus dearness allowance with 20 years of service is entitled to approximately ₹6,92,308 in gratuity. For senior employees with long tenures, gratuity can run into lakhs, making it one of the largest one-time payouts an employee receives during their career. Understanding how this amount is calculated helps you plan for career transitions, retirement, and financial goals.

Whether you are planning to switch jobs, approaching retirement, negotiating a compensation package, or simply curious about what your employer owes you after years of service, this calculator gives you the precise gratuity figure. Enter your details and see the breakdown instantly.

How Gratuity Is Calculated in India

Gratuity calculation in India follows a specific formula defined by the Payment of Gratuity Act, 1972. The formula differs based on whether the employee is covered under the Act and whether they are a government employee.

For Employees Covered Under the Gratuity Act (Private Sector):

Gratuity = (Last Drawn Salary x 15 x Years of Service) / 26

Where:

Last Drawn Salary = Basic salary + Dearness Allowance (DA) at the time of leaving
15 = 15 days’ wages for each completed year of service (or part thereof exceeding 6 months)
26 = Number of working days in a month (as defined by the Act)

For Government Employees:

Gratuity = (Last Drawn Salary x 15 x Years of Service) / 30

The denominator is 30 instead of 26 because government rules consider 30 calendar days per month rather than 26 working days.

Example for Private Sector:

An employee with a last drawn basic salary plus DA of ₹50,000 per month and 15 years of service: Gratuity = (50,000 x 15 x 15) / 26 = ₹4,32,692

Example for Government Sector:

Same salary and tenure under government rules: Gratuity = (50,000 x 15 x 15) / 30 = ₹3,75,000

The difference between the two formulas means private sector employees receive a higher gratuity than government employees on the same salary and tenure, though government employees typically have separate retirement benefits.

Eligibility: Who Qualifies for Gratuity

The Payment of Gratuity Act applies to establishments with 10 or more employees, including factories, mines, oilfields, plantations, ports, railway companies, shops, and establishments. Once the Act applies to an establishment, it continues to apply even if the employee count drops below 10.

The 5-Year Rule:

The most important eligibility criterion is completion of 5 continuous years of service with the same employer. If you leave before completing 5 years, you are generally not entitled to gratuity. However, there are exceptions:

Death or Disability: If an employee dies or becomes disabled during employment, gratuity is payable regardless of the length of service. For death, gratuity is paid to the nominee or legal heir.
Rounding of Years: Service exceeding 6 months in the final year is rounded up to one full year. So 4 years and 7 months counts as 5 years for gratuity eligibility. But 4 years and 5 months does not qualify.

Important Clarification on Continuous Service:

The Supreme Court of India has clarified that interruptions in service due to authorized leave, layoffs, or lockouts do not break the continuity of service. Temporary breaks for illness, maternity, or other approved leaves do not reset the 5-year clock.

Maximum Gratuity Limit

The Payment of Gratuity Act caps the maximum gratuity payable at ₹20,00,000 (₹20 lakh). This limit was last revised in March 2024 from the previous cap of ₹20 lakh. Any gratuity calculated above this amount is limited to ₹20 lakh.

For senior employees in large organizations with high salaries and long tenures, the formula may produce a figure exceeding ₹20 lakh, but the employer is legally required to pay only up to the cap. However, many private companies, particularly in the IT sector and MNCs, pay gratuity above the statutory cap as a contractual benefit. In such cases, the excess amount may have different tax implications.

Tax Treatment of Gratuity:

Gratuity received by government employees is fully exempt from income tax.

For private sector employees covered under the Gratuity Act, the least of the following is exempt from tax:

Actual gratuity received
₹20,00,000 (the statutory cap)
15 days’ salary for each completed year of service (calculated with 26-day divisor)

For employees not covered under the Act (those in organizations with fewer than 10 employees), the exemption calculation uses a half-month salary per year formula with a different computation. Use the Income Tax Calculator (Old vs New) to determine your tax liability on any taxable portion of gratuity.

Gratuity for Different Types of Employment

Full-Time Employees in Private Companies:

The standard formula applies. Most IT professionals, banking employees, manufacturing workers, and corporate employees fall under this category. The key variable is whether the company treats all allowances as part of basic salary for gratuity calculation or only basic plus DA. Companies that offer a lower basic salary (higher special allowances) effectively reduce the gratuity amount.

Contract and Fixed-Term Employees:

Under the 2018 amendment to the Industrial Employment (Standing Orders) Central Rules, fixed-term employees are entitled to gratuity on a pro-rata basis even if they complete less than 5 years. This was a significant change that extended gratuity benefits to a growing segment of the workforce. The gratuity is proportional to the period of service.

Seasonal Employees:

Employees working in seasonal establishments are eligible for gratuity after completing 5 seasons with the same employer. Service duration is calculated based on actual working days during each season.

Piece-Rate Workers:

For employees paid on a piece-rate basis, gratuity is calculated based on the average daily earnings over the last 3 months of service, multiplied by 15 days per year of service.

Gratuity and Your Retirement Planning

Gratuity forms one of the three pillars of retirement benefits for Indian salaried employees, alongside EPF and pension (NPS or employer pension scheme).

Estimating Your Gratuity at Retirement:

If you are currently 30 years old earning ₹40,000 basic plus DA and plan to retire at 60, your gratuity depends on your final salary. Assuming 7% annual salary growth, your basic plus DA at 60 would be approximately ₹3,05,000 per month. Gratuity = (3,05,000 x 15 x 30) / 26 = ₹52,98,077. However, the statutory cap of ₹20 lakh limits the actual payout.

This illustrates why relying on gratuity alone is insufficient for retirement. The capped amount represents only a fraction of what the formula calculates for long-tenured, high-salary employees. Supplement gratuity with robust EPF, PPF, and NPS contributions. Use the EPF Calculator, PPF Calculator, and NPS Calculator to build a complete retirement projection.

Gratuity as Part of CTC:

Many employers include gratuity as a component of Cost to Company (CTC). The annual gratuity allocation is typically calculated as (Basic + DA) x 15/26 x 1/12 = approximately 4.81% of basic plus DA per month. This amount is provisioned by the employer but only paid out when you leave after completing 5 years.

If you switch jobs before completing 5 years, you forfeit this benefit. This is an important consideration when evaluating job offers: the gratuity component of CTC only has value if you stay for at least 5 years.

Gratuity When Switching Jobs

Forfeiture for Less Than 5 Years: If you leave an employer before completing 5 years (or 4 years and 7 months), you do not receive gratuity. The employer’s provisioned amount reverts to the company. This is effectively money you leave on the table.

Negotiating Gratuity During Job Change: When negotiating a new offer, factor in the gratuity you are leaving behind. If you have 4 years of service at your current employer, you are potentially walking away from a significant amount. Some companies offer a sign-on bonus to compensate for forfeited benefits.

Multiple Employments: Gratuity is employer-specific. Your service years do not carry over between employers. Starting at a new company resets the 5-year clock entirely. This means frequent job-hoppers (changing every 2-3 years) may never receive gratuity throughout their career.

Calculation When Leaving: If you are leaving a company and are eligible for gratuity, the employer must pay the amount within 30 days of it becoming payable. Delay attracts interest at the rate specified by the government (currently 10% per annum from the date it becomes due).

Gratuity Insurance and Trust

Employers can fund gratuity through two methods:

Group Gratuity Insurance: The employer purchases a group gratuity policy from an insurance company (LIC, ICICI Prudential, HDFC Life, etc.). Annual premiums are paid to build the fund. This is the most common method and provides tax benefits to the employer under Section 36(1)(v).

Gratuity Trust: The employer creates an approved gratuity trust and makes contributions to it. The trust invests the funds and pays gratuity to departing employees. This is more common in large organizations and PSUs.

Employees should note that the funding method does not affect their entitlement. Whether the employer uses insurance, a trust, or pays from the balance sheet, the employee’s gratuity amount is calculated using the same formula.

This calculator provides estimates based on FY 2025-26 tax slabs. Consult a Chartered Accountant before filing.

Frequently Asked Questions

How is gratuity calculated in India?

For private sector employees under the Gratuity Act: Gratuity = (Last Drawn Salary x 15 x Years of Service) / 26. Last Drawn Salary means basic plus DA. For government employees, the divisor is 30 instead of 26. Service exceeding 6 months in the final year is rounded up to one full year.

When am I eligible for gratuity?

You are eligible after completing 5 continuous years of service with the same employer. The 5-year rule has an exception: if service exceeds 4 years and 6 months, it rounds up to 5 years. Gratuity is also payable regardless of tenure in cases of death or disability during employment.

What is the maximum gratuity amount?

The maximum gratuity under the Payment of Gratuity Act is ₹20,00,000 (₹20 lakh). Even if the formula produces a higher amount, the statutory payout is capped here. Some private companies pay above this cap as a contractual benefit.

Is gratuity taxable?

For government employees, gratuity is fully tax-exempt. For private sector employees, gratuity up to ₹20 lakh is exempt if it does not exceed the formula-calculated amount. Any amount above the exemption limit is taxable at your income tax slab rate.

Do I lose gratuity if I resign before 5 years?

Yes. If you leave before completing 5 years of continuous service (or 4 years and 7 months), you forfeit your gratuity entitlement. The provisioned gratuity amount reverts to the employer. This is an important factor when considering job changes.

Is gratuity part of CTC?

Many employers include gratuity in CTC, typically as approximately 4.81% of basic plus DA per month. However, this amount is only paid when you leave after completing 5 years. If you leave earlier, this CTC component provides no actual benefit to you.

What salary is used for gratuity calculation — basic or gross?

Only basic salary plus Dearness Allowance (DA) is used for gratuity calculation under the Act. Other components like HRA, special allowances, bonuses, and incentives are not included. Companies with a low basic salary structure effectively pay lower gratuity.

How soon must the employer pay gratuity after I leave?

The employer must pay gratuity within 30 days of it becoming payable (the date you leave, retire, or become disabled). Delay beyond 30 days attracts interest at the government-specified rate (currently 10% per annum) from the due date until the actual payment date.

Default rates shown are illustrative. Always verify current limits with your employer. Data accurate as of: March 2026