Calculate your gratuity payout and its tax-free portion under Indian law.
How Gratuity Is Calculated in India
Gratuity is a lump-sum benefit paid by an employer to an employee as a token of appreciation for continuous service, typically on retirement, resignation (after 5+ years), or death/disability. The formula depends on whether your employer is covered under the Payment of Gratuity Act, 1972.
Covered under the Act: Gratuity = (Last Drawn Basic+DA × 15 × Years of Service) ÷ 26
Not covered under the Act: Gratuity = (Last Drawn Basic+DA × 15 × Years of Service) ÷ 30
The 6-Month Rounding Rule
When calculating years of service, any period of 6 months or more in the final year is rounded up to the next full year, while anything less is ignored. For example, 8 years and 7 months of service counts as 9 years for the gratuity formula.
Tax Treatment
For private-sector employees covered under the Act, gratuity received is tax-exempt up to a lifetime limit of ₹20 lakh. Government employees enjoy a higher exemption limit of ₹25 lakh. Any amount received above these limits is added to your taxable income and taxed according to your applicable income tax slab.
❓ Frequently Asked Questions
Who is eligible for gratuity in India? ▼
Employees who have completed at least 5 years of continuous service with the same employer are eligible for gratuity on resignation, retirement, or superannuation. The 5-year requirement is waived in case of death or disability.
What's the difference between the 15/26 and 15/30 gratuity formulas? ▼
The 15/26 formula applies to employees covered under the Payment of Gratuity Act, 1972 (26 being the average working days in a month). The 15/30 formula applies to employees not covered under the Act, using 30 calendar days instead, which generally results in a lower payout.
Is gratuity taxable? ▼
Gratuity is tax-exempt up to ₹20 lakh over your career for private-sector employees covered under the Act, and up to ₹25 lakh for government employees. Amounts beyond these limits are taxed as per your income tax slab.
Does 'Basic Salary + DA' include HRA or other allowances? ▼
No. The gratuity formula uses only your last drawn Basic Salary plus Dearness Allowance (DA) — it excludes HRA, bonuses, commissions, and other allowances.
Can an employer pay more than the formula amount? ▼
Yes, an employer can voluntarily pay a higher gratuity amount than the statutory formula requires, but only the amount up to the statutory tax-exemption limit remains tax-free; any additional amount is fully taxable.
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📅 Last Updated: September 2026.