Every year you stay with one employer, a silent balance builds up in your name. It is never deducted from your pay, yet on the day you leave it can be one of the largest single payments of your working life.

What Is Gratuity?

Gratuity is a lump sum your employer pays you as a thank-you for long service. It is not taken out of your salary and it is not a bonus the company may skip in a bad year - where the law applies, it is a legal right that grows with every completed year of service.

The rules were first set by the Payment of Gratuity Act, 1972. Since 21 November 2025, gratuity sits in the Code on Social Security, 2020, one of the four new Labour Codes - the formula and most of the rules carried over unchanged.

The law covers factories, mines, oilfields, plantations, ports, railways, shops and other establishments that employ 10 or more people. Government offices and most organised private companies fall inside it. Where the law applies, the employer must pay - it is not optional and it is not a favour.

You receive gratuity when the employment ends: on retirement, on resignation after enough service, on being laid off, or on death or disablement, in which case your family receives it. The amount depends on just two things - your last drawn salary and how long you served.

How to Use This Gratuity Calculator

Change any figure and the amount, the eligibility line and the growth table update instantly.

Step 1: Enter your monthly Basic salary from your latest salary slip - only the Basic component, not your full CTC.

Step 2: Enter your monthly Dearness Allowance, if your salary has one. Many private salaries have no separate DA - then leave it at zero, or enter the merged Basic plus DA figure as Basic.

Step 3: Enter your completed years of service with this employer.

Step 4: Enter the extra months beyond those years, from 0 to 11. These months matter: under the Act, more than 6 extra months count as a full extra year.

Step 5: Choose whether your employer is covered under the Gratuity Act. Most companies with 10 or more employees are covered. If yours is not, switch the setting and compare - the calculator shows the other case under the results either way.

Basic and DA are separate fields for a reason: gratuity is calculated only on Basic pay plus Dearness Allowance. HRA, special allowance, bonus and overtime never enter the formula, so typing your gross salary would inflate the answer.

Gratuity Formula - What Is 15/26?

The formula looks strange until you see what it means. Gratuity pays you 15 days of wages for every year of service. A month is counted as 26 working days, after leaving out the weekly offs - and that is the whole secret of the number 26.

Dividing by 26 turns your monthly salary into a daily wage. Multiply by 15 and you get 15 days of wages; multiply by your years of service and you get the amount. So 15/26 simply means fifteen twenty-sixths of one month of salary for each year you worked.

The covered and not-covered cases differ in three ways that change real money:

One more point decides many real calculations: only two parts of your pay count as salary here - Basic pay and Dearness Allowance. HRA, conveyance, special allowance, bonus, overtime and commission all stay out, however large they are.

Gratuity Calculation Example

Take a monthly Basic of ₹40,000 and DA of ₹10,000 - a salary base of ₹50,000 - with 10 years of service in a covered company. The calculator above starts with exactly these figures.

Step 1: ₹50,000 × 15 = ₹7,50,000.

Step 2: ₹7,50,000 × 10 years = ₹75,00,000.

Step 3: ₹75,00,000 ÷ 26 = ₹2,88,462, rounded to the nearest rupee.

So 10 years of service on a ₹50,000 salary base pays ₹2,88,462 - and because it is under ₹20 lakh, the whole amount is tax-free.

Now the rounding rule at work. Serve 7 years and 7 months instead: the extra 7 months are more than 6, so the service counts as 8 full years. The same formula gives ₹50,000 × 15 × 8 ÷ 26 = ₹2,30,769. A few months at the end of a career can add a whole year of gratuity - one reason your exact leaving date matters.

Gratuity Eligibility - Who Can Get It?

The basic condition is 5 years of continuous service with the same employer. Continuous service is counted from your joining date, and a part year of more than 6 months rounds up - so 4 years and 7 months of service counts as 5 years, and gratuity becomes payable.

Gratuity is paid when the job ends, in any of these situations: retirement or superannuation, resignation after 5 years, layoff or retrenchment, leaving because of an accident or disease, or death in service.

Two exceptions remove the 5-year condition completely. If an employee dies or is disabled by an accident or disease, gratuity is payable however short the service was - the nominee or family receives it. Fixed-term employees, after the Labour Codes change described below, qualify after just 1 year.

Once gratuity becomes payable, the employer must pay it within 30 days, whether or not a formal application has been filed. If the employer delays beyond those 30 days, simple interest is payable on the amount for the whole delay - our Interest Calculator shows what such interest works out to on any sum.

An employer can refuse gratuity only in narrow cases of serious misconduct causing damage or loss, and only up to the extent of that loss.

What Changed Under the New Labour Codes?

On 21 November 2025, India's four Labour Codes took effect together, and gratuity moved from the Payment of Gratuity Act, 1972 into the Code on Social Security, 2020. For most employees, the everyday calculation did not change at all.

The 15/26 formula is unchanged. The 5-year rule for regular employees stays, and so do the ₹20 lakh cap on the payable amount and the ₹20 lakh tax-free limit. If you knew the old rules, the arithmetic in this calculator will look familiar.

The biggest single change is for fixed-term employees - people hired directly for a fixed contract period. Earlier they effectively needed 5 years like everyone else; under the Code they become eligible for gratuity after 1 year of service, paid in proportion to their period of work.

The definition of wages also widened. Wages now mean Basic pay, DA and retaining allowance, and if your other allowances together exceed 50% of your total pay, the excess is added back into wages. For employees whose Basic was kept artificially low inside a large CTC, the gratuity base can now be higher than it would have been under the old reading.

The change is recent and payroll departments are still aligning their systems, so treat any borderline case with care and confirm it in writing.

Gratuity for Private Employees

A common doubt is whether gratuity is only a government benefit. It is not. Most private-sector employees are covered in exactly the same way, as long as the establishment employs 10 or more people. This gratuity calculator for private employees uses the same 15/26 formula, because the law makes no separate rule for private jobs.

There is no separate private formula. A software engineer in an IT company, a teacher in a private school, a nurse in a private hospital and a worker in a small factory all earn gratuity by the same 15/26 calculation, on the same Basic plus DA base, with the same 5-year condition. Private schools were brought fully inside the law years ago, and teachers are covered like other employees.

What if your employer has fewer than 10 employees, or is otherwise outside the law? Then nothing forces the company to pay - but many such employers still pay gratuity voluntarily as part of the full-and-final settlement, usually with the gentler divisor of 30 and no rounding of part years. That is the Not Covered case in the calculator above.

One practical warning: your gratuity is only as real as your salary slip. A very small Basic inside a large CTC means a small gratuity, because only Basic plus DA counts - though the widened wage rule in the new Code may help in such cases.

Tax on Gratuity

Gratuity enjoys one of the most generous exemptions in the Income Tax Act. For an employee covered by the gratuity law, the amount received is fully tax-free up to ₹20 lakh over your lifetime, under Section 10(10). The exemption is the lowest of three figures: the gratuity actually received, ₹20 lakh, and the amount the formula gives for your service.

Anything above the exempt part is added to your salary income for that year and taxed at your normal slab rate. With the payable amount itself capped at ₹20 lakh for covered employees, most people never cross into the taxable zone at all.

Government employees are better placed still: their gratuity is fully exempt, with no ceiling. Employees of employers outside the law also get an exemption, worked out differently - half a month of average salary per completed year - so their tax-free part can be smaller.

The calculator above splits your result into the tax-free and taxable portions on this basis. Tax rules and limits do change, so confirm the current position for your case when you file the return for the year you receive it.

After You Receive Your Gratuity

Gratuity usually arrives at a turning point - retirement, or a job change late in your career. Before spending any of it, decide what this money has to do: replace a monthly income, sit safely for a known need, or keep growing for goals that are still years away. One lump sum often has to do a little of each.

If you want the corpus to pay you a fixed amount every month while the rest stays invested, our SWP Calculator shows how long a chosen monthly withdrawal can last at different returns.

For a guaranteed monthly payout with no market risk at all, the Post Office MIS Calculator shows the monthly interest a deposit earns under the post office monthly income scheme.

And if the need is simply to park the money safely for a fixed period while you decide, the FD Calculator works out what a bank fixed deposit will be worth at maturity at any rate and period.

Common Mistakes

• Calculating on gross salary: gratuity uses only Basic plus DA. Running the formula on your full CTC or take-home pay inflates the expected amount badly
• Forgetting DA: if your salary has a Dearness Allowance, it is part of the base. Leaving it out understates your gratuity - sometimes by a large margin
• Expecting gratuity before 5 years: resign at 3 or 4 years and, the death and disablement exceptions aside, nothing is payable - the service simply has not qualified
• Misreading the rounding: only a part year of MORE than 6 months rounds up, and only in the covered case. Four or five extra months add nothing, and exactly 6 months does not round up either
• Ignoring the ₹20 lakh cap: on very high salaries or very long service the formula can cross ₹20 lakh easily - but a covered employer cannot be made to pay more than the cap
• Assuming every employer is covered: establishments with fewer than 10 employees can sit outside the law entirely, where payment is voluntary and usually follows the divisor of 30

Disclaimer: This calculator is an educational tool based on the gratuity rules currently in force. Its figures are estimates - your employer's payroll method, the exact wage definition applied to your salary structure and future rule changes can all move the final amount. This page is not tax or legal advice. Please confirm your gratuity with your employer and a chartered accountant before acting on it.

Gratuity Calculator (FAQ)

Who is eligible for gratuity?

You are eligible after 5 years of continuous service with the same employer, if the establishment employs 10 or more people. A part year of more than 6 months counts as a full year. On death or disablement the 5-year condition does not apply, and fixed-term employees qualify after 1 year.

What is 15/26 in gratuity calculation?

15/26 is the heart of the formula. You earn 15 days of wages for every year of service, and a month is counted as 26 working days, so one year of service earns 15 divided by 26 of a month's salary. Gratuity = last drawn Basic plus DA, multiplied by 15 and years, divided by 26.

How much gratuity do I get for 10 years of service?

It depends on your last drawn Basic plus DA. On a salary base of ₹50,000 a month, the covered formula gives ₹50,000 × 15 × 10 ÷ 26 = ₹2,88,462. Double the salary and the gratuity doubles too - at ₹1,00,000 a month, the same 10 years would pay ₹5,76,923.

Is gratuity taxable?

Partly. For employees covered by the gratuity law, gratuity is tax-free up to ₹20 lakh in a lifetime under Section 10(10) of the Income Tax Act. Anything above that is added to your salary income and taxed at your slab rate. Gratuity of government employees is fully exempt, with no limit.

What is the maximum gratuity amount?

For employees covered by the law, an employer cannot be made to pay more than ₹20 lakh as gratuity, and the same ₹20 lakh is the lifetime tax-free limit. If your formula amount crosses ₹20 lakh, the payable amount stops at the cap and any extra an employer pays voluntarily is taxable.