Gratuity Calculator (India)

How the gratuity formula works

For employers covered by the Payment of Gratuity Act 1972, the formula is:

Gratuity = (Last drawn Basic + DA) × 15 ÷ 26 × Years of continuous service

The divisor 26 represents 26 working days in a month (excluding weekly offs). For employees of non-covered employers, the formula uses 30 as the divisor instead of 26, which gives a slightly lower number.

Years of continuous service is rounded as follows: a year with 6 months or more is counted as a full year; less than 6 months is dropped. A minimum of 5 years of continuous service is required to be eligible (with limited exceptions for death and disability).

The ₹20 lakh tax-free cap

Under Section 10(10) of the Income Tax Act, gratuity received from an employer is tax-free up to ₹20 lakh in a lifetime (combined across all employers). Any amount above this cap is added to the employee's taxable income in the year of receipt. The cap was raised from ₹10 lakh to ₹20 lakh in March 2018.

Who is eligible

• Employees with 5+ years of continuous service with the same employer.
• Employers covered under the Act: establishments with 10 or more employees.
• Eligibility kicks in earlier in cases of death or permanent disability.
• Both salaried employees and apprentices (in some cases) are covered.

When gratuity is paid

Gratuity becomes payable on resignation, retirement, superannuation, death, or disablement. The employer must pay gratuity within 30 days of it becoming due; delayed payment attracts simple interest at the rate notified by the government.

Common mistakes

• Counting only Basic without DA — both must be added if DA is part of the wage definition.
• Excluding employees of unregistered establishments — the Act applies once the employee count crosses the threshold.
• Rounding service years down for less than 6 months — that is correct, but rounding 6+ months up is mandatory.
• Treating gratuity as fully tax-free — only up to the ₹20 lakh lifetime cap.

Frequently asked questions

What is the gratuity formula in India?

(Last drawn Basic + DA) × 15 ÷ 26 × years of continuous service, for Act-covered employers. The divisor is 30 instead of 26 for non-Act-covered employers.

Is gratuity tax-free in India?

Yes, up to ₹20 lakh lifetime under Section 10(10) of the Income Tax Act. Anything above is added to taxable income.

What if I leave before 5 years?

You are typically not eligible for statutory gratuity if you separate before 5 years of continuous service, except in cases of death or permanent disability.

Does CTC include gratuity?

Yes, employers usually include a gratuity provision (typically 4.81% of Basic + DA) in the CTC. However, you only receive gratuity if you complete 5 years of service.

Can my employer pay more than the formula?

Yes. Employers can pay more than the statutory minimum as a contractual benefit. The ₹20 lakh tax-free cap applies regardless of how much the employer pays.