Gratuity Calculator - Calculate Statutory Gratuity
Compute statutory gratuity payout on resignation or retirement based on last drawn basic pay, dearness allowance, and years of service under the Payment of Gratuity Act, 1972.
Calculation Summary
Private Sector (15/26) vs Central Government & Section 10(10) ₹25L Cap
Evaluate how your gratuity is computed across Private Covered (15/26 formula), Central Govt / Civil Services (1/4th emolument per 6-month period), and Private Non-Covered (15/30 half-month) establishments, including the enhanced ₹25 Lakh statutory tax ceiling.
Visualizations
Statutory Calculation Schedule
Understanding Gratuity Calculation Under Indian Law
Gratuity is a statutory monetary benefit provided by employers to employees under the Payment of Gratuity Act, 1972 as a token of appreciation for rendering long-term continuous service. Under Section 4(1) of the Act, gratuity becomes legally payable upon retirement, resignation, superannuation, or retrenchment—provided the employee has rendered at least 5 continuous years of service with the employer. In cases of death or permanent disablement due to accident or disease, this 5-year requirement is strictly waived.
Covered Employees Formula (15/26)
For establishments, factories, shops, and private corporations with 10 or more employees:
- 26 Working Days: A month is legally calculated as 26 working days (excluding 4 Sundays).
- 15 Days Wages: Employees receive half-a-month wages (15 working days) for every completed year.
- 6-Month Rounding Rule: Service exceeding 6 months in the final year is rounded up to a full year (e.g., 7 years 7 months = 8 years).
Non-Covered Employees Formula (15/30)
For employees not covered under the Act (organizations with fewer than 10 workers):
- 30 Calendar Days: A standard calendar month of 30 days is applied as the denominator.
- Completed Years Only: Fractional service months are ignored; only completed full years are counted.
- Salary Definition: Basic Salary + DA + Commission (if calculated as fixed % of turnover).
Section 10(10) Income Tax Exemption Limit: ₹20 Lakh
Under Section 10(10) of the Income Tax Act, 1961, gratuity received by private sector employees is completely tax-free up to a lifetime ceiling of ₹20,00,000 (₹20 Lakh). Any amount received in excess of ₹20 Lakh is treated as taxable income under the head "Income from Salaries" in the financial year of receipt and taxed at applicable income tax slab rates (with relief available under Section 89). For Central and State Government employees, gratuity is 100% exempt from income tax without any monetary upper limit.
For an authoritative deep dive into continuous service rules, Madras and Delhi High Court rulings on the 4 years 240 days threshold, and tax optimization strategies, read our comprehensive Gratuity Calculation Rules, Taxation & 5-Year Exemption Guide →
Frequently Asked Questions
What is the 5-year continuous service rule for gratuity?
Under Section 4(1) of the Payment of Gratuity Act 1972, an employee is eligible for gratuity only if they have rendered continuous service for at least 5 years with the same employer. Multiple High Court judgments (Madras HC in M. Vellayan v. Mgmt and Supreme Court precedents) have held that completing 4 years and 240 days of continuous work in the 5th year qualifies as continuous service under Section 2A.
Why is the salary divided by 26 instead of 30 in the gratuity formula?
The Payment of Gratuity Act treats a working month as having 26 days after deducting four Sundays (statutory weekly rest days). Therefore, one day's wage is computed as Last Drawn Salary / 26. Gratuity for 15 days is then calculated as (Last Drawn Salary / 26) × 15 for each completed year of service.
Is gratuity taxable in India?
For Central, State, and Local Government employees, gratuity is 100% tax-free. For private sector non-government employees, gratuity is exempt under Section 10(10) of the Income Tax Act up to a cumulative lifetime limit of ₹20 Lakh. Any gratuity received exceeding ₹20 Lakh is added to taxable salary income.
What components of salary are included for gratuity calculation?
Only Basic Salary and Dearness Allowance (DA) are included. Other salary allowances such as HRA, Special Allowance, conveyance, medical allowance, LTA, and annual performance bonuses are strictly excluded from the statutory gratuity formula.
What is the gratuity tenure requirement and can you get gratuity before 5 years?
Under Section 4(1) of the Payment of Gratuity Act, the statutory gratuity tenure is 5 years of continuous service. However, under Section 2A, completing 4 years and 240 days (or 190 days in a 5-day workweek establishment) in the 5th year fulfills the continuous service condition as upheld by Supreme Court and High Court precedents. Furthermore, in cases of an employee's demise or permanent disability, the 5-year tenure rule is completely waived.
What is the 7th Pay Commission gratuity calculation formula for Central Government employees?
Under Central Civil Services (CCS) Pension Rules (7th CPC), Retirement Gratuity is computed as: Gratuity = (Emoluments / 4) × Number of Completed 6-Month Qualifying Periods where Emoluments = Last Drawn Basic Pay + Dearness Allowance (DA). Gratuity is capped at 16.5 times the monthly emoluments or ₹25 Lakh (enhanced from ₹20 Lakh in 2024), and is 100% tax-free under Section 10(10)(i) without any tax clawback.