Gratuity Calculation Formula India — Free Calculator 2026

Gratuity is a lump-sum payment your employer owes you for long service, but most employees only think about it when they're already resigning — by which point it's too late to plan around it. Knowing the formula in advance helps you understand exactly what you're entitled to and whether your employer's settlement is correct. See also our Complete Salary & Tax Guide for Indian Employees.

Who Is Eligible

Under the Payment of Gratuity Act, 1972, you're eligible for gratuity if you've completed at least 5 years of continuous service with the same employer (this 5-year rule has some exceptions, like death or disability, where it doesn't apply). The Act covers establishments with 10 or more employees, which includes the vast majority of mid-size and large Indian companies.

The Formula

For employees covered under the Act, gratuity is calculated as:

(Last drawn basic salary + DA) × 15 × number of years of service ÷ 26

The "26" represents the typical number of working days in a month (assuming a 6-day work week), and "15" represents 15 days of salary for each completed year of service. Any service period over 6 months in your final year is rounded up to a full year.

Worked Example

If your last drawn basic + DA is ₹50,000/month and you've completed 12 years of service: ₹50,000 × 15 × 12 ÷ 26 ≈ ₹3,46,154. The Gratuity Calculator does this math instantly and also shows whether your employer falls under the Act's coverage rules — toggle this in the tool if you work for a smaller establishment, since the formula and exemption rules differ slightly outside the Act.

The ₹20 Lakh Exemption Limit

Gratuity received is exempt from income tax up to ₹20 lakh (this limit was raised from ₹10 lakh in 2018). Any amount received above ₹20 lakh across your career is taxable. For most employees this limit is generous enough that gratuity is effectively tax-free, but it's worth checking if you've changed jobs multiple times with high gratuity payouts.

Frequently Asked Questions

Is gratuity paid even if I resign (not fired)?

Yes. Gratuity is owed for resignation, retirement, layoff, or termination — as long as you meet the minimum service requirement. It is not a discretionary bonus.

What if my company has fewer than 10 employees?

You may still be entitled to gratuity under your employment contract or company policy, but the statutory formula under the Payment of Gratuity Act may not strictly apply — check your offer letter or HR policy.

Does gratuity get paid along with my final salary?

Employers are required to pay gratuity within 30 days of it becoming due. It's usually processed separately from your final salary settlement.

Is the ₹20 lakh exemption per job or for my whole career?

It's a lifetime aggregate limit across all employers, not per job.