Gratuity calculator for India

How gratuity is calculated in India

For employers covered by the Payment of Gratuity Act, 1972 (generally those with 10 or more employees):

Gratuity = 15 × last drawn salary × years of service ÷ 26

• Salary means basic pay plus dearness allowance (DA).
• 26 is the number of working days in a month, so 15/26 of a month is 15 days' wages for each year.
• Years: a final part year of more than six months counts as a full year.
• Eligibility: at least five years of continuous service, except on death or disablement, when there is no minimum.
• Limit: the Act caps gratuity at ₹20 lakh. Employers can pay more under their own policy.

Employers not covered by the Act

Some employers pay gratuity voluntarily. For tax, these payments use 15 days' average salary (over the last 10 months) per completed year, on a 30-day month.

Tax on gratuity

Government employees' gratuity is fully tax-free. For everyone else, gratuity is tax-free up to the lowest of the actual amount, the formula amount and ₹20 lakh, and the ₹20 lakh is a lifetime limit across all employers (section 10(10) of the Income Tax Act).

The new labour codes

The Code on Social Security, 2020, which is replacing the Gratuity Act, brings changes such as gratuity for fixed-term employees after one year and a wider definition of wages. Check with your employer how the new rules apply to you.

Sources: Payment of Gratuity Act, 1972 (sections 2(s) and 4); Income Tax Act, 1961, section 10(10); Ministry of Labour and Employment.

Questions people ask

What is the formula for gratuity in India?

Last drawn salary (basic + DA) × 15 × years of service ÷ 26, for employers covered by the Payment of Gratuity Act.

Is gratuity paid before 5 years?

Not normally. The Act requires five years of continuous service, except on death or disablement. Some courts have counted 4 years and 240 working days as five years.

How much gratuity is tax-free?

All of it for government employees. For others, up to ₹20 lakh over your working life.

Do 6 months count as a full year?

More than six months in the final year counts as a full year under the Act. Exactly six months or less does not.

More money calculators