Gratuity Calculator 2026 (Payment of Gratuity Act)

How the gratuity calculator works

Start by choosing whether your establishment is covered by the Payment of Gratuity Act, 1972. Broadly, the Act applies to factories, mines, plantations, ports, railways, shops and other establishments with ten or more employees; once the Act has applied to an establishment it continues to apply even if the headcount later falls. If you are unsure, ask your HR team — the answer changes both the divisor and the way part-years are counted.

Then enter your last drawn monthly salary, meaning Basic pay plus Dearness Allowance only. HRA, bonus, overtime, employer PF contribution and reimbursements do not enter the gratuity formula. For an establishment that is not covered, enter the average monthly Basic + DA of your last ten months instead, because that is the base the standard formula uses.

Finally enter completed years of service and any extra months. The calculator checks eligibility first — gratuity under the Act is payable only after five completed years of continuous service — then works out the applicable years, applies the correct formula and shows the exempt and taxable split. If your employer pays more than the formula amount, enter that actual figure so the tax split is right.

Gratuity formula with variable key

For an establishment covered by the Act, gratuity is fifteen days' wages for every completed year of service, with a month treated as twenty-six working days.

For an establishment that is not covered by the Act, the widely used formula is Gratuity = (15 ÷ 30) × average monthly Basic + DA of the last ten months × completed years. Two differences matter: the divisor is 30 rather than 26, which lowers the amount, and part-years are ignored entirely rather than rounded up.

The rounding rule under the Act is precise. Section 4(2) counts a period in excess of six months as a full year, so ten years and seven months counts as eleven years, while ten years and exactly six months counts as ten years.

Worked example in rupees

Suppose your last drawn Basic + DA is ₹50,000 a month, your establishment is covered by the Act, and you leave after ten years and seven months of continuous service.

• Eligibility: ten completed years is above the five-year minimum, so gratuity is payable
• Applicable years: seven months exceeds six months, so the service counts as 11 years
• Gratuity = (15 ÷ 26) × ₹50,000 × 11 = ₹3,17,308
• Exempt under Section 10(10): ₹3,17,308 — the whole amount, because it is below the ₹20,00,000 limit
• Taxable: ₹0

Change one input and the answer moves sharply. With ten years and exactly six months the service counts as ten years and gratuity falls to ₹2,88,462. In an establishment not covered by the Act, with the same ₹50,000 average Basic + DA, the formula gives (15 ÷ 30) × ₹50,000 × 10 = ₹2,50,000, since part-years are not counted at all.

At the top end, a last drawn Basic + DA of ₹2,00,000 with 25 completed years gives ₹28,84,615. Of that, ₹20,00,000 is exempt and ₹8,84,615 is taxed at slab rates.

Comparison: covered and not-covered establishments

The covered formula is about 15% more generous at every salary level, purely because of the 26-day divisor. Service length matters more still: at ₹50,000 Basic + DA, gratuity is ₹1,44,231 after five years, ₹2,88,462 after ten, ₹4,32,692 after fifteen and ₹8,65,385 after thirty.

Tax on gratuity under Section 10(10)

Gratuity received by a government employee is fully exempt from income tax. For other employees, the exemption under Section 10(10) is the least of three amounts: the gratuity actually received, the amount worked out by the applicable formula, and ₹20,00,000. The ₹20 lakh ceiling is a lifetime limit across all employers, so exemption you have already used in an earlier job reduces what is available now. Anything above the exempt amount is taxed as salary income at your slab rate.

The exemption is available under both the old and the new tax regime. Employers deduct TDS on the taxable portion and report it in Form 16; check that the exempt figure there matches the calculation above before you file.

The five-year condition is waived if service ends because of death or disablement — gratuity is then payable regardless of length of service. Gratuity paid to a nominee or legal heir follows separate tax treatment; check the current position rather than assuming the salary rules apply unchanged.

Common mistakes when estimating gratuity

• Using gross salary: the formula uses Basic + DA only. Entering CTC or gross pay can overstate gratuity by two or three times.
• Assuming 4 years 11 months qualifies: the Act requires five completed years of continuous service, and this calculator returns nil below that.
• Rounding up at exactly six months: the Act says a period in excess of six months. Six months exactly does not add a year.
• Forgetting that the ₹20 lakh exemption is a lifetime limit shared across employers.
• Expecting a covered-establishment result from a non-covered employer: the divisor changes from 26 to 30 and part-years disappear.
• Forgetting to claim it: gratuity is payable on resignation, retirement, superannuation, death or disablement, but you still have to submit Form I.
• Ignoring the fixed-term rule: under the Code on Social Security, 2020, brought into force on 21 November 2025, a fixed-term employee earns gratuity on a pro rata basis after one year of service. This calculator applies the five-year rule, so it understates gratuity for a fixed-term contract.

Frequently asked questions

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