Gratuity Calculator

What this calculator does

Gratuity is a thank-you, paid in money, for staying. When you leave a job in India after years of service, your employer owes you a lump sum on top of your final salary, as a reward for the time you gave. This calculator works out how much that lump sum comes to.

You enter your last drawn salary and how long you worked, and it returns your total gratuity. The amount is not arbitrary. It follows a formula written into law, the Payment of Gratuity Act of 1972, and that formula has a couple of quirks worth understanding, starting with the odd-looking fraction at its heart.

Why the formula divides by 26

The gratuity formula is this:

Gratuity = Last drawn salary × 15 ÷ 26 × Years of service

The 15 and the 26 look strange until you see what they stand for. The law grants you 15 days of pay for every year you served. To turn your monthly salary into a daily rate, it divides by 26, not 30, because it treats a working month as 26 days, leaving out the four Sundays. So you take a day's pay, based on a 26-day month, and award 15 of those days for each year.

Put together, 15 divided by 26 is about 0.58, which is a shade over half. So the rule of thumb is simple: gratuity is roughly half a month's salary for every year you worked. That 26 matters, by the way. Divide by 30 instead, as some people wrongly do, and the daily rate shrinks, and so does the gratuity you are owed. The law is on the side of the larger number.

How to use it

1. Final month's salary plus DA. Your last drawn basic salary plus dearness allowance. More on why it is only these two below.
2. How long you worked. Your length of service, in years or months.

Press Calculate for your total gratuity, or Reset to clear the fields. One thing to keep in mind on the years: the law counts a part-year over six months as a full year, so 10 years and 8 months is treated as 11. Six months or less is dropped. So round your service the way the law would before you read too much into the last rupee.

A worked example you can check

Say your last drawn basic plus DA was ₹60,000 a month, and you worked for 10 years. Let us run it.

• Salary: ₹60,000
• Days per year of service: 15
• Working days in a month: 26
• Gratuity: 60,000 × 15 ÷ 26 × 10 = ₹346,153.85

So you would receive about ₹3.46 lakh. Notice that this is close to five and a half months of salary for ten years of work, which is that "half a month per year" rule of thumb showing up in practice. Change the salary or the years and the gratuity moves in step with them.

The five-year line, and the exception that waives it

Gratuity is a reward for staying, so the law asks you to stay a while first. The basic condition is five years of continuous service with the same employer, in an establishment covered by the Act, which means most workplaces with ten or more employees. Cross five years and you are entitled to gratuity when you retire, resign, or your job ends. Fall short, and ordinarily you get nothing, which is why this calculator asks for at least five years.

But there is one humane exception, and it matters. If service ends because of death or disablement from an accident or disease, the five-year rule is waived entirely. Gratuity is then paid for the years actually worked, to the employee or, in the case of death, to the nominee or family. The law recognises that these are exactly the situations where a family most needs the money, and it does not make them wait for a five-year clock that life cut short.

What "salary" means here, and why it matters

This is where people quietly lose money, so it is worth being precise. In the gratuity formula, "salary" is not your whole pay packet. It is only your basic salary plus your dearness allowance. Your HRA, your bonuses, your other allowances, and the rest of your CTC do not count.

That has a real consequence. Two people on the same total salary can receive very different gratuity if their pay is split differently. Someone whose package loads a lot into basic pay gets a bigger gratuity than someone whose basic is kept low and the rest piled into allowances. So when you leave, check that your employer used the correct basic plus DA, and your full, correctly rounded years. A dropped six-month period, or DA left out of the figure, can quietly shrink what is owed to you. It is your money for years of work, so it is worth making the formula prove itself.

The twenty lakh ceiling

There is a cap on how much gratuity is tax-free. Under the Income Tax Act, for private-sector employees covered by the Gratuity Act, gratuity is exempt from tax up to ₹20 lakh across your working life. This ceiling was last raised to ₹20 lakh in 2018, and the government can revise it further over time.

Below the cap, which is where the large majority of people sit, your gratuity is fully tax-free. Only very long service at a high salary reaches it. If the formula does hand you more than ₹20 lakh, the excess is not lost, but it is treated as taxable income, or as a voluntary payment from the employer beyond what the law requires. Government employees have their own, more generous treatment, with gratuity fully exempt. For most private-sector workers, the practical takeaway is reassuring: the number this calculator gives you is usually yours to keep, untaxed.

Questions people ask

Do I get anything if I leave before five years?

Ordinarily no. Five years of continuous service is the basic condition. The one exception is that the five-year rule is waived if service ends due to death or disablement, in which case gratuity is paid for the years actually worked.

Is gratuity based on my full salary?

No. It is based only on your last drawn basic salary plus dearness allowance. HRA, bonuses, and other allowances are excluded, which is why a low basic pay reduces the gratuity even on a high total package.

How are part-years counted?

A final part-year over six months rounds up to a full year, so 10 years and 8 months counts as 11. Six months or less is dropped. Enter your service with that rounding in mind.

Will I pay tax on my gratuity?

Usually not. For covered private-sector employees, gratuity is tax-free up to ₹20 lakh over your lifetime, and most people fall well under that. Only the amount above the ceiling would be taxable.

References

The gratuity formula, the five-year eligibility condition, the death and disablement exception, and the coverage of establishments with ten or more employees all come from the Payment of Gratuity Act, 1972, administered by the Ministry of Labour and Employment. The ₹20 lakh tax-free ceiling is set under Section 10(10) of the Income Tax Act.

1. Ministry of Labour and Employment, Government of India, Payment of Gratuity Act, 1972. https://labour.gov.in/payment-gratuity-act-1972