Gratuity Calculator
What you are owed, and how much of it is actually tax free
How your number was worked out
How much of it is tax free?
- Covered by the Act: (Basic + DA) × 15 × years ÷ 26. The 26 is working days in a month, assuming four weekly offs.
- Not covered: average salary of the last 10 months × 15 × years ÷ 30. This calculator uses your entered salary as that average.
- Rounding: more than 6 months in the final year rounds up to a full year. Exactly 6 months does not.
- Eligibility is 5 years of continuous service, waived entirely on death or disablement. Courts have held that 4 years plus 240 days in the fifth year satisfies the requirement.
- Fixed term employees qualify after 1 year under the Code on Social Security, 2020.
- The ₹20 lakh exemption for private employees is a lifetime cap across all employers, and it applies under both the old and the new tax regime.
- This is an estimate of your statutory entitlement. Your employer may pay more under a contract or award, and should never pay less.
Three Things That Quietly Shrink Your Gratuity
The formula is simple. What goes wrong is what people put into it.
1. Using CTC instead of Basic plus DA
Gratuity is calculated on Basic Salary plus Dearness Allowance only. HRA, special allowance, conveyance, bonus, LTA and every other component are excluded.
Someone on a ₹1,00,000 monthly CTC with a ₹40,000 Basic will not get gratuity on ₹1,00,000. They get it on ₹40,000. Any calculator that asks for your CTC is giving you a number your employer will never pay.
2. Dividing by 30 when it should be 26
For employers covered by the Payment of Gratuity Act, the divisor is 26, not 30. The Act treats a month as 26 working days, allowing for four weekly offs.
On ₹60,000 Basic plus DA with 10 years of service, dividing by 26 gives ₹3,46,154. Dividing by 30 gives ₹3,00,000. That is over 13% less.
The 30 day divisor applies only to employers not covered by the Act, meaning those with fewer than 10 employees.
3. Losing a year to the rounding rule
Service beyond six months in the final year rounds up to a full year. Six months exactly does not.
- 7 years 8 months becomes 8 years
- 10 years 5 months stays 10 years
- 10 years 6 months stays 10 years
If you can choose your last working day and you are near that line, a few weeks can be worth an entire year of gratuity.
The ₹20 Lakh Limit Is a Lifetime Cap, Not a Per Job One
This catches senior professionals badly, and almost no calculator accounts for it.
The ₹20 lakh tax free limit under Section 10(10) applies across your whole career, not afresh at each employer.
How it plays out:
- You leave your first company after 12 years and receive ₹5 lakh gratuity, entirely tax free. ₹15 lakh of your exemption remains.
- You leave the second after 9 years with ₹12 lakh, also tax free. ₹3 lakh remains.
- You retire from the third with ₹10 lakh. Only ₹3 lakh of it is tax free. The other ₹7 lakh is taxed at your slab.
The calculator above has a field for gratuity you have already received. Fill it in and you will see your actual position rather than a theoretical one.
The 4 Years 240 Days Rule
Gratuity normally requires five years of continuous service. There is one widely misunderstood exception.
Courts have repeatedly held that completing 4 years plus 240 working days in the fifth year satisfies the five year requirement under Section 2A of the Act. That works out to roughly 4 years and 8 months.
Employers refuse this routinely. An employee leaves at 4 years 9 months, is told they do not qualify, and walks away. If the matter reaches the controlling authority, the employer usually loses.
If you are near this line, count the actual working days in your fifth year before accepting a refusal. Section 2A counts sickness, accident, authorised leave, layoff and legal strike as continuous service, so those days are on your side.
The five year rule is waived entirely for
- Death of the employee, where gratuity is paid to the nominee regardless of service length
- Disablement preventing further work
- Fixed term employees, who qualify after just 1 year under the Code on Social Security, 2020
The Formula, in Full
| Covered by the Act | Not covered | |
|---|---|---|
| Applies to | Establishments with 10 or more employees | Smaller establishments paying voluntarily |
| Salary used | Last drawn Basic + DA | Average of last 10 months |
| Formula | Salary × 15 × years ÷ 26 | Salary × 15 × years ÷ 30 |
| Statutory ceiling | ₹20 lakh | Set by the employer |
One point on coverage. Once an establishment has employed 10 or more people, it stays covered by the Act even if the headcount later falls below 10. Employers sometimes claim otherwise.
Working Out the Tax
Most articles say gratuity is tax free up to ₹20 lakh. That is a simplification.
For private sector employees, the exempt amount is the least of three figures:
- The gratuity you actually received
- ₹20,00,000, reduced by any gratuity exemption you have already used in your career
- The formula amount, being Basic plus DA × 15 ÷ 26 × years of service
The calculator shows all three and highlights which one is limiting you.
For government employees, central, state or local authority, gratuity is fully exempt with no upper limit. The maximum payable to central government employees was raised to ₹25 lakh with effect from 1 January 2024.
An important point on regimes. The gratuity exemption under Section 10(10) survives in both the old and the new tax regime. Unlike 80C, 80D and other Chapter VI-A deductions, switching to the new regime does not cost you this exemption.
If a large part is taxable
A big taxable gratuity landing in one year can push you into a higher slab. Section 89 relief exists for exactly this. It spreads the tax burden across the years of service you actually earned it over.
To claim it, file Form 10E on the income tax portal before filing your return. Doing it afterwards does not work.
Your Employer Has 30 Days
Gratuity must be paid within 30 days of becoming payable, meaning from your last working day.
Delay attracts interest at 10% a year. That is a statutory entitlement, not a favour.
Your employer cannot withhold gratuity because you joined a competitor, because you did not serve full notice, or because of a general dispute. Forfeiture is permitted only in narrow cases: termination for riotous or disorderly conduct, an act of moral turpitude committed in the course of employment, or wilful damage to the employer's property, and even then only to the extent of the damage.
If payment is refused or delayed, the remedy is an application to the Controlling Authority under the Act, which is the labour department official designated for your area.
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