Gratuity Calculator
Work out your gratuity payout and how much of it is tax-free — covered or not, old regime or new.
Your details
Gratuity is based on your last-drawn Basic + DA and your years of service.
Educational estimate under the Payment of Gratuity Act, 1972 and Section 10(10). It uses the standard 15/26 (covered) and 15/30 (not-covered) formulas and applies the exemption rules current for FY 2025-26. Actual entitlement depends on your exact service record and employer terms. Not tax advice — confirm with your employer or a qualified professional.
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Gratuity in India: How It's Calculated & Taxed
What gratuity is, when you become eligible, the two formulas, and exactly how much is tax-free — including the new-regime rule that catches people out.
Updated for FY 2025-26 (AY 2026-27).
Gratuity is a lump sum your employer pays for long service, usually after 5 years. For most private employees it's (Basic + DA) × 15 ÷ 26 × years of service, and it's tax-free up to ₹20 lakh — but the new tax regime quietly caps that exemption far lower.
Who gets gratuity, and when
Gratuity is governed by the Payment of Gratuity Act, 1972, which covers any establishment with 10 or more employees. Once a company crosses that threshold it stays covered even if headcount later drops. You become entitled after 5 years of continuous service with the same employer — on resignation, retirement or being laid off.
The 5-year wait is waived if service ends due to death or disablement, in which case gratuity is paid regardless of tenure.
The 4-years-and-240-days nuance
Strictly, the rule says five years. But multiple High Courts have held that completing 4 years plus 240 working days in the fifth year satisfies the requirement. So if you're close to the line, you may qualify sooner than a literal reading suggests. It isn't guaranteed everywhere, so treat it as a point to raise, not to assume.
How it's calculated
There are two formulas, and which one applies depends on whether your employer is covered by the Act.
If your employer is covered (most are)
The 15 is 15 days' wages for each year; the 26 is the assumed working days in a month. "Salary" here means only Basic + Dearness Allowance — not your full CTC, and not HRA or other allowances. A part-year of 6 months or more rounds up to a full year; less than 6 months is dropped.
If your employer is not covered
Here the divisor is 30, not 26, and only fully completed years count — there's no rounding up. Using 30 instead of 26 produces a noticeably smaller figure, so it matters which category you're in.
How much is tax-free
Gratuity is exempt under Section 10(10), and there are three categories:
- Government employees — fully exempt, no upper limit.
- Private employees covered by the Act — exempt up to the least of: ₹20 lakh, the actual gratuity received, or the formula amount.
- Private employees not covered — exempt up to the least of: ₹20 lakh, actual gratuity, or half-month's average salary × completed years.
In practice, if your employer pays exactly what the formula produces, the whole amount up to ₹20 lakh is exempt, and only the excess is taxable as salary in the year you receive it.
The new-regime trap. Under a CBDT circular, the gratuity exemption in the new tax regime is capped at just ₹5 lakh, not ₹20 lakh. So a payout that would be fully tax-free under the old regime can leave a large taxable chunk under the new one. If you're receiving a big gratuity, this is worth modelling before you choose your regime for the year.
The ₹20 lakh is a lifetime limit
A detail people miss: the ₹20 lakh exemption is a lifetime aggregate across all employers, not a fresh allowance each time. If you claimed ₹8 lakh exempt at an earlier job, only ₹12 lakh of exemption remains for a future gratuity. Keep a record of gratuity claimed at each employer.
What counts as "salary" and "service"
- Salary = last-drawn Basic + DA only. Allowances, bonuses and HRA are excluded.
- Service = continuous service with one employer. Authorised leave counts; a genuine break may not.
- The employer can choose to pay more than the formula or the ₹20 lakh cap — the cap limits the tax exemption, not what the employer may pay. Anything above is taxable.
Getting paid: the timeline
Your employer must pay gratuity within 30 days of it becoming due. Delay beyond that attracts simple interest. If a claim is wrongly withheld, it can be pursued with the Controlling Authority under the Act. Always ensure a nominee is registered (Form F), so the amount passes smoothly if the worst happens.
Reporting it in your ITR
Even when your gratuity is fully exempt, report both the gross amount and the exempt portion in your return — it should match your Form 16. Where part is taxable, Section 89 relief can cushion the impact of a large one-off payment pushing you into a higher slab. One transition note: your July 2026 return (FY 2025-26) still uses the old Section 10(10) references; the renumbered Income-tax Act 2025 applies from returns filed in 2027.
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Frequently Asked Questions
Eligibility, the formula, and how much of your gratuity is tax-free — the questions people actually ask.
Gratuity is a lump sum your employer pays you for long service, under the Payment of Gratuity Act, 1972. It is a statutory benefit, separate from your salary and provident fund, generally paid when you leave after five or more years.
After five years of continuous service with the same employer, on resignation, retirement or being laid off. The five-year requirement is waived if you leave due to death or disablement, in which case it is paid regardless of tenure.
Generally no. But several High Courts have accepted that 4 years plus 240 working days in the fifth year meets the requirement. It is not applied uniformly everywhere, so raise it with your employer rather than assuming it.
For employees of a covered employer: (last-drawn Basic + DA) × 15 ÷ 26 × years of service. The 15 is 15 days' pay per year and the 26 is the assumed working days in a month. A part-year of 6 months or more rounds up to a full year.
Only your last-drawn Basic pay plus Dearness Allowance. Your full CTC, HRA, bonuses and other allowances are not included — which is why gratuity is usually smaller than people expect from their total package.
A different formula applies: average monthly salary of your last 10 months × 15 ÷ 30 × completed years. The divisor is 30 rather than 26, and only fully completed years count, so the result is somewhat lower.
For private employees covered by the Act, the exemption is the least of ₹20 lakh, the actual gratuity received, or the formula amount. Government employees are fully exempt with no cap. Anything above the exempt amount is taxed as salary in the year received.
Yes, and it surprises many people. Under a CBDT circular the gratuity exemption in the new tax regime is capped at ₹5 lakh, versus ₹20 lakh in the old regime. A large gratuity that would be fully exempt in the old regime can be substantially taxable in the new one.
Lifetime, across all employers combined. If you claimed ₹8 lakh of exemption at an earlier job, only ₹12 lakh of exemption remains for any future gratuity. Keep a record of what you have claimed at each employer.
For covered employers, a final part-year of 6 months or more rounds up to a full year, and less than 6 months is ignored. So 12 years and 7 months counts as 13 years; 12 years and 5 months counts as 12.
Yes. The ₹20 lakh figure caps the tax exemption, not what the employer is allowed to pay. If your employer pays more, the excess is simply taxable as salary income.
Within 30 days of it becoming due. A delay beyond that attracts simple interest, and a wrongly withheld claim can be pursued through the Controlling Authority under the Act.
The same rules and the same lifetime ₹20 lakh exemption apply. Because the exemption is a lifetime total, gratuity taken at multiple employers is aggregated when working out how much stays tax-free.
Yes. Report both the gross gratuity and the exempt portion in your return, matching your Form 16, even if the whole amount is tax-free. Where part is taxable, Section 89 relief can reduce the impact of a large one-off payment.
No. It is an educational estimate using the standard formulas and current exemption rules. Your actual entitlement depends on your exact service record, salary structure and employer terms. Confirm with your employer or a qualified professional.