Gratuity Calculator India 2026 — Calculate Your Gratuity Amount Instantly
Gratuity is a statutory benefit paid by employers to employees who have completed 5 or more years of continuous service. Under the Payment of Gratuity Act, 1972, this lump-sum payment is a significant component of an employee’s retirement corpus. Understanding how gratuity is calculated helps both employers budget accurately and employees plan their finances.
Gratuity Calculation Formula
The standard gratuity formula for employees covered under the Payment of Gratuity Act (organizations with 10+ employees) is:
Gratuity = (Last Drawn Salary × 15 × Years of Service) ÷ 26
Where Last Drawn Salary includes basic salary plus dearness allowance. The divisor of 26 represents the working days in a month (excluding 4 Sundays). Years of service above 6 months are rounded up to the next full year.
Example Calculation
Employee with 8 years and 7 months of service, last drawn salary (Basic + DA) of ₹50,000:
Years of service = 9 (rounded up from 8 years 7 months)
Gratuity = (50,000 × 15 × 9) ÷ 26 = ₹2,59,615
For Employees Not Covered Under the Act
Employees in organizations with fewer than 10 employees or those not covered under the Act use a slightly different formula:
Gratuity = (Last Drawn Salary × 15 × Years of Service) ÷ 30
The divisor changes from 26 to 30, resulting in a slightly lower amount.
Gratuity Eligibility Rules
To be eligible for gratuity under the Act, an employee must have completed a minimum of 5 years of continuous service with the same employer. However, this 5-year requirement is waived in cases of death or disability — gratuity is payable regardless of service length. The Supreme Court has also clarified that 4 years and 240 days of service qualifies as 5 years for gratuity purposes.
Maximum Gratuity Limit 2026
The current maximum gratuity amount is ₹20,00,000 (twenty lakh rupees) as per the 2019 amendment. This ceiling applies to the tax-exempt portion of gratuity. Employers can pay gratuity exceeding this limit, but the excess amount is taxable in the employee’s hands.
Tax Treatment of Gratuity
Government Employees
Gratuity received by government employees (Central, State, or Local Authority) is fully exempt from income tax under Section 10(10)(i) of the Income Tax Act. There is no upper limit on exemption for government employees.
Private Sector Employees Covered Under the Act
For private sector employees covered under the Payment of Gratuity Act, the least of the following three amounts is exempt from tax: (1) Actual gratuity received, (2) 15 days’ salary for each year of completed service (based on last drawn salary), or (3) ₹20,00,000.
Private Sector Employees Not Covered
For employees not covered under the Act, the least of the following is exempt: (1) Actual gratuity received, (2) Half month’s average salary for each year of completed service (based on average of last 10 months), or (3) ₹20,00,000.
How INDPayroll Handles Gratuity
INDPayroll automatically calculates gratuity liability for all eligible employees, tracks service years precisely (including the 240-day rule), and maintains a running gratuity provision in your payroll reports. When an employee exits, the exact gratuity amount is calculated and included in the full and final settlement with correct tax treatment. Start your free trial to automate gratuity calculations for your entire workforce.
Frequently Asked Questions
Is gratuity deducted from my salary?
No. Gratuity is entirely employer-funded. Unlike PF where both employer and employee contribute, gratuity is 100% paid by the employer at the time of separation.
Can I receive gratuity if I resign?
Yes, gratuity is payable on resignation, retirement, death, or disability — as long as you have completed 5 years of continuous service (except in cases of death/disability).
What happens if my employer refuses to pay gratuity?
Gratuity is a statutory right under the Payment of Gratuity Act. If an employer refuses, you can file a complaint with the Controlling Authority (usually the Labour Commissioner) in your area. The employer can face penalties including imprisonment for non-payment.
Is gratuity applicable for contract employees?
If a contract employee has completed 5 years of continuous service with the same principal employer, they are eligible for gratuity. The Supreme Court has upheld this in multiple judgments.
