Estimate gratuity using the common statutory-style formula and a rough split between taxable and exempt amounts for covered employers.
Reviewed July 2026 · FY 2026–27 (AY 2027–28) tax slabs in engine · Methodology
Legal/tax treatment can differ — this is a planning estimate (see accuracy card).
Illustrative inputs: last drawn ₹1,00,000 per month, 7 years of service, covered employer. Estimated gross gratuity ₹4,03,846; exempt (rough) ₹4,03,846; taxable (rough) ₹0 — figures are produced by the same function as the live calculator above.
No. Tax on gratuity depends on employer type, exemptions, and salary history. Consult a CA for exact treatment.
Gratuity is a statutory lump-sum benefit paid by employers to employees as a token of appreciation for long service, governed by the Payment of Gratuity Act, 1972. It applies to establishments with 10 or more employees. For most private-sector salaried employees in India, gratuity becomes payable after completing five years of continuous service — though the exact minimum-service rule has court interpretations worth verifying with your employer's HR.
The formula used by most covered employers is: Monthly basic salary × 15 × years of service ÷ 26. The "26" represents a standard working-month denominator; the "15" represents 15 days' salary per year of service. Monthly basic salary here means the last drawn Basic + DA, not gross. This means the gratuity quantum is directly sensitive to your Basic+DA — a low Basic salary at a high-CTC company will produce a lower gratuity than the same gross at a company with a higher Basic structure.
Tax treatment depends on your employer's coverage status. For employees covered under the Payment of Gratuity Act (10+ employees), gratuity received is exempt from income tax up to a statutory ceiling. Beyond that ceiling, the excess is taxable as salary income. For employers not covered by the Act (fewer than 10 employees), the exemption formula is different and lower. The specific rupee ceiling is set by the government and has been revised over time — verify the current limit on the Income Tax Department website or with a qualified CA before filing.
Gratuity is part of your final settlement when you resign, are terminated, or retire. Employers typically compute it on the last drawn Basic+DA. Disputes often arise around service year rounding (is 4 years 8 months counted as 5 years?) — check your employment contract and the prevailing interpretation under the Gratuity Act. The calculator here estimates the gross gratuity amount; consult your HR policy for the exact eligible amount in your situation.
Gratuity is a statutory payment mandated by the Payment of Gratuity Act, 1972. It is a lump sum paid by an employer to an employee as a token of gratitude for continuous service. Unlike provident fund, gratuity is entirely funded by the employer — no amount is deducted from your salary.
The Act applies to establishments with 10 or more employees. Eligibility requires continuous service of at least five yearswith the same employer. However, the five-year rule has an important exception: if an employee dies or becomes permanently disabled, gratuity is payable regardless of years of service. Similarly, the Supreme Court has held that even 4 years and 240 days qualifies as "five years" in certain interpretations, though this varies by employer and jurisdiction.
The formula under the Payment of Gratuity Act is:
Gratuity = (15 × Last Drawn Monthly Salary × Years of Service) ÷ 26
The "15" represents 15 days' pay per year of service. The "26" represents the number of working days in a month (a 6-day work week with 4 Sundays subtracted from 30 days). Last drawn salary means Basic + Dearness Allowance only — HRA, special allowance, and other components are excluded.
Example: 8 years of service, last Basic+DA ₹50,000/month. Gratuity = (15 × 50,000 × 8) ÷ 26 = ₹2,30,769. The maximum gratuity payable under the Act is ₹20 lakh — above this, the excess is at the employer's discretion (some companies pay higher voluntarily).
For government employees, the entire gratuity is tax-exempt. For private sector employees covered under the Payment of Gratuity Act, the exemption is the least of:
For most employees receiving gratuity within the statutory ceiling, the full amount is effectively tax-free. If your employer voluntarily pays gratuity beyond the statutory limit, the excess is taxable as salary income in the year of receipt.
Many employers include gratuity accrual in CTC — typically 4.81% of Basic+DA (which is (15/26) ÷ 12 months, or approximately 1/12 of 15 days' pay per year). This means your "CTC" includes money that is not available to you until you complete five years of service and then exit.
If you leave before five years, this portion of your CTC is forfeited — it is not paid out, and it was never in your take-home salary. This is one reason why short-tenure employees often find that their effective compensation is lower than their CTC implied.