Gratuity Calculator
Gratuity Calculator
Payment of Gratuity Act, 1972 · 15/26 formulaEmployee type
Private-sector gratuity is tax-free up to ₹20 lakh (lifetime cap across all employers). Government gratuity is fully tax-free with no upper limit.
Gratuity Payable
₹3.46 L
Fully tax-free under §10(10)
Tax-Free Portion
₹3.46 L
Taxable Portion
₹0
Years Considered
10
The gratuity formula
Under the Payment of Gratuity Act, 1972, gratuity for an employee covered by the Act is:
(15 ÷ 26) × Last drawn monthly salary (Basic + DA) × Completed years of service
The "15" reflects 15 days' wages per year of service; the "26" represents the working days in a month (the Act treats a month as 26 days for this calculation). For someone earning ₹60,000 Basic + DA after 10 years of continuous service, the gratuity works out to (15/26) × 60,000 × 10 = ₹3,46,154.
Eligibility and the 4-and-a-half-year rule
You need 5 years of continuous service to qualify. The Supreme Court has held that completing more than 4 years and 6 months in the final year of service counts as 5 years for eligibility — so 4 years and 7 months qualifies; 4 years and 5 months does not. Two exceptions waive the 5-year requirement entirely: death and permanent disability. In both cases the nominee or employee receives gratuity even if service was shorter.
What counts as "salary"
Only Basic salary plus Dearness Allowance (DA). Statute excludes:
- House Rent Allowance (HRA)
- Special allowances, transport allowance, medical allowance
- Bonus, commissions, incentives, overtime
- Perquisites — company car, accommodation, ESOPs
The salary in the last full month before exit is the one applied across all years of service.
Tax treatment under §10(10)
- Government employees (central, state, local, defence) — gratuity is fully tax-free with no upper cap.
- Private-sector employees covered by the Gratuity Act — tax-free up to ₹20 lakh (lifetime cap across all employers). Excess is taxed at slab rate in the year received.
- Private-sector employees NOT covered by the Act (organisations with fewer than 10 employees, or specific exclusions) — formula switches to half a month's average salary of the last 10 months × years of completed service, with the same ₹20 lakh cap.
The ₹20 lakh cap is cumulative across your career — if a previous employer gave you ₹15 lakh tax-free, only ₹5 lakh of the cap remains for future jobs.
Payment timeline and recourse
Gratuity becomes payable on your last day of work. The employer must pay within 30 days. After that, simple interest accrues at the rate the central government notifies (currently 10% p.a.). If the employer disputes or refuses payment:
- Submit Form I (claim) to the employer within 30 days of exit.
- If unanswered or refused, file Form N with the Controlling Authority (typically the local Labour Commissioner).
- The Authority can direct payment along with interest and a penalty for delay.
Forfeiture — when can an employer withhold?
Only on narrow grounds: termination for wilful misconduct, riotous conduct, or any act of violence that causes damage or destruction to the employer's property — and only to the extent of the damage caused. Routine performance issues, voluntary resignation, layoff, retrenchment, or termination not involving property damage do not allow forfeiture.
Formula and tax caps verified 2026-05-28 against the Payment of Gratuity Act, 1972 and Income Tax Act §10(10). The ₹20 lakh exemption cap was last raised by the Finance Act 2019.
FAQs
Gratuity is a lump-sum payment your employer pays you when you leave a job after at least 5 years of continuous service. It's mandated by the Payment of Gratuity Act, 1972 for organisations with 10 or more employees. Think of it as a long-service reward — the longer you stay, the bigger the cheque.
For employees covered by the Gratuity Act, the formula is (15 / 26) × last drawn monthly salary (Basic + DA) × completed years of service. The "15" is 15 days of salary per year of service; the "26" represents working days per month. Example: ₹60,000 monthly salary × 10 years = (15/26) × 60000 × 10 = ₹3.46 lakh gratuity.
Only Basic salary + Dearness Allowance (DA). Other components — HRA, special allowances, bonus, overtime, commissions, perquisites — are not included. The salary on your last full month of work is the one used.
You need 5 years of continuous service to be eligible — but the rounding rule helps. If you complete more than 4 years and 6 months in your last year, the law treats it as 5 years. So 4 years and 7 months qualifies; 4 years and 5 months does not. One exception: gratuity is paid regardless of years if employment ends due to death or disability.
Three rules under §10(10): (1) Government employees — fully tax-free, no upper limit. (2) Private-sector employees covered by the Gratuity Act — tax-free up to ₹20 lakh (lifetime cap across all employers). Anything above ₹20 lakh is taxed at slab rate. (3) Private-sector employees NOT covered by the Act — different formula and a half-month-per-year basis, with the same ₹20 lakh cap.
Lifetime. If you received ₹15 lakh tax-free gratuity from a previous employer, you only have ₹5 lakh of the cap left. Anything beyond that becomes taxable at your slab rate even at the next employer.
Within 30 days of when gratuity becomes payable (i.e., your last working day). If the employer delays, simple interest at the rate notified by the government (currently 10% p.a.) accrues from the due date until payment.
Only under narrow conditions: termination for wilful misconduct or actions causing damage / loss / destruction to the employer's property. Even then, the forfeiture is only to the extent of the damage. Routine performance issues or termination for misconduct that doesn't cause property damage do not let an employer withhold gratuity.
Step 1: send Form I to your employer within 30 days of leaving. Step 2: if the employer ignores or delays, file Form N with the Controlling Authority under the Gratuity Act (usually the local Labour Commissioner). The authority can order payment plus interest plus a penalty.
No. Gratuity is a one-shot lump-sum at exit. EPF is a monthly retirement-savings contribution (12% employer + 12% employee). Pension under EPS is a monthly post-retirement income. All three are governed by separate Acts and have separate calculations, eligibility rules, and tax treatment.