What is Gratuity?
Gratuity is a lump-sum payment your employer gives as a token of thanks for long service. It is governed by the Payment of Gratuity Act, 1972 and applies to establishments with 10 or more employees. You receive it when you leave the job after completing the minimum service, when you retire, or on resignation, and your nominee receives it if you die or become disabled.
This gratuity calculator uses the statutory formula to show how much you can expect, how much is tax-free and how the amount grows with each year of service.
Gratuity Formula: 15/26 Explained
- Last drawn salary means monthly basic pay plus dearness allowance (DA). Under the new Labour Codes, wages for gratuity must include basic, DA and retaining allowance.
- 15 is the number of days of wages payable for each completed year.
- 26 is the number of working days in a month. For employees not covered by the Act (but whose employer pays gratuity), the divisor is 30.
- Years of service: if you have worked more than 6 months in the last year, it is rounded up. For example, 7 years and 8 months counts as 8 years.
Example: ₹50,000 basic + DA, 10 years of service
Gratuity = (50,000 × 15 × 10) ÷ 26 = ₹2,88,462.
Gratuity Amount Chart
| Last drawn salary (basic + DA) | Years of service | Gratuity |
|---|---|---|
| ₹30,000 | 5 | ₹86,538 |
| ₹50,000 | 10 | ₹2,88,462 |
| ₹80,000 | 20 | ₹9,23,077 |
| ₹2,00,000 | 30 | ₹34,61,538 |
For an employee not covered under the Act, with ₹40,000 salary and 8 years of service, the amount is (40,000 × 15 × 8) ÷ 30 = ₹1,60,000.
Who is Eligible for Gratuity?
- An employee who has completed 5 years of continuous service is eligible on resignation, retirement or termination.
- Under the new Labour Codes (in force from 21 November 2025), fixed-term employees become eligible after 1 year of service.
- The 5-year condition does not apply if the employee dies or becomes disabled; the nominee receives gratuity.
Gratuity Tax Rules
For private-sector employees covered by the Act, gratuity received on retirement, resignation, death or disablement is tax-free up to ₹20 lakh. Any amount above the limit is added to your salary income and taxed. For government employees, gratuity is fully exempt. Gratuity is paid by your employer within 30 days of it becoming due.
How to Use This Gratuity Calculator
- Enter your last drawn monthly basic salary plus DA.
- Enter the completed years of service (round up if more than 6 months).
- Choose whether your employer is covered by the Payment of Gratuity Act (divisor 26) or not (divisor 30).
- See the gratuity amount, the tax-free part and the taxable part. Save a report with Preview & Save.
Tip: If your CTC has a very small basic salary, your gratuity will be small too. Plan along with your EPF and NPS contributions.
Gratuity: Things Employees Should Know
- Gratuity is payable even if you resign, as long as you have completed the minimum service.
- Your employer must pay gratuity within 30 days of it becoming due, or pay simple interest on the delay.
- If your basic is a small part of your CTC, your gratuity is small. Under the Labour Codes, basic plus DA must be at least 50% of total pay, which can raise it.
- Gratuity can be forfeited only in specific cases, such as dismissal for serious misconduct.
- Nominate a family member through Form F so that the amount reaches them smoothly.
Combine gratuity with your EPF and NPS to see your full retirement benefits.