Gratuity Calculator
Estimate your statutory gratuity — (15/26) × last drawn Basic+DA × years of service, with the 5-year eligibility rule and ₹20 lakh cap applied.
What is Gratuity and Who is Entitled to Receive It?
Gratuity is a statutory monetary retiral benefit paid by an employer to an employee in recognition of long-term continuous service. Governed by the Payment of Gratuity Act, 1972, gratuity is legally mandated for every establishment, factory, mine, oilfield, plantation, port, railway company, shop, or commercial establishment employing 10 or more persons on any day in the preceding 12 months.
An employee becomes legally entitled to receive gratuity upon terminating employment—whether through superannuation, retirement, or resignation—after rendering continuous service for not less than 5 years with the same organization. The 5-year condition is waived in cases of an employee's demise or total permanent disablement due to accident or disease.
The 15/26 Statutory Calculation Formula (Covered Employees)
For employees covered under the Payment of Gratuity Act, the statutory formula determines the gratuity entitlement based on 15 days' wages for every completed year of service. To derive a single day's wage from monthly salary, the law divides monthly pay by 26 working days (excluding 4 statutory Sundays):
- Daily Wage: Last Drawn Monthly Basic Salary + Dearness Allowance (DA) ÷ 26
- 15 Days Wage: (Last Drawn Salary ÷ 26) × 15
- Service Rounding Rule: If service in the final year exceeds 6 months (180 days), it is rounded up to the next full year. For example, 7 years and 7 months of service is treated as 8 years.
Gratuity Calculation Formulations
Covered: Gratuity = (15 × Last Drawn Salary × Tenure) ÷ 26 | Non-Covered: (15 × Avg Salary × Tenure) ÷ 30
- Last Drawn Salary: Basic Salary + Dearness Allowance (DA if part of service terms) in the final month
- Tenure: Completed years of continuous service (rounded up if fraction > 6 months for covered employees)
- 26: Statutory working days in a month for establishments covered under the Gratuity Act
- Non-Covered Employees: Gratuity = (15 × Average 10-Month Salary × Tenure) ÷ 30 (fractions of a year ignored)
- Statutory Tax-Exempt Limit: Up to ₹20,00,000 under Section 10(10) for non-government employees
Worked example: 15 Years Service at ₹60,000 Basic Pay
Consider a private sector employee covered under the Gratuity Act who resigns after 15 completed years of service with a last drawn basic salary plus DA of ₹60,000 per month:
- Last Drawn Monthly Salary: ₹60,000
- Completed Years of Service: 15 years
- One Day's Wage: ₹60,000 ÷ 26 = ₹2,307.69
- 15 Days' Wage: ₹2,307.69 × 15 = ₹34,615.38
- Total Statutory Gratuity: ₹34,615.38 × 15 = ₹5,19,231
- Tax-Exempt Status: ₹5,19,231 is fully exempt from income tax (well below the ₹20,00,000 statutory cap)
Gratuity Entitlement Matrix Across Salary Levels and Tenures
| Last Drawn Salary (Basic+DA) | 5 Years Service | 10 Years Service | 15 Years Service | 20 Years Service | 25 Years Service |
|---|---|---|---|---|---|
| ₹30,000 | ₹86,538 | ₹1,73,077 | ₹2,59,615 | ₹3,46,154 | ₹4,32,692 |
| ₹50,000 | ₹1,44,231 | ₹2,88,462 | ₹4,32,692 | ₹5,76,923 | ₹7,21,154 |
| ₹75,000 | ₹2,16,346 | ₹4,32,692 | ₹6,49,038 | ₹8,65,385 | ₹10,81,731 |
| ₹1,00,000 | ₹2,88,462 | ₹5,76,923 | ₹8,65,385 | ₹11,53,846 | ₹14,42,308 |
| ₹1,50,000 | ₹4,32,692 | ₹8,65,385 | ₹12,98,077 | ₹17,30,769 | ₹20,00,000 (Capped) |
Tax Exemption under Section 10(10) of Income Tax Act
Under Section 10(10) of the Income Tax Act, the taxability of gratuity is categorized as follows:
- Government Employees: Central, state, and local authority employees receive 100% tax exemption on their entire gratuity payout under Section 10(10)(i) with no monetary ceiling.
- Non-Government Covered Employees: Section 10(10)(ii) exempts the least of: (1) Actual gratuity received, (2) Statutory ceiling of ₹20,00,000 (lifetime limit), or (3) Gratuity calculated using the statutory 15/26 formula.
- Tax on Excess Gratuity: Any gratuity received exceeding ₹20 lakh is added to taxable salary and taxed at the employee's applicable slab rate, with eligibility for Section 89 tax relief.
Forfeiture Rules and Employer Payment Deadlines
Under Section 4(6) of the Payment of Gratuity Act, an employer can forfeit gratuity only under strictly limited circumstances: if the employee's services were terminated for riotous or disorderly conduct, acts of violence, moral turpitude, or causing intentional damage to company property (limited to the financial extent of the loss).
Furthermore, under Section 7(3), the employer must disburse the gratuity within 30 days of it becoming payable. If payment is delayed beyond 30 days, the employer is legally liable to pay simple interest on the delayed amount at the rate notified by the Central Government (currently 10% p.a.).
Frequently Asked Questions on Gratuity
Key insights into eligibility, formulas, tax exemption limits, resignation scenarios, and forfeiture rules.
Yes. Under Section 4(1) of the Payment of Gratuity Act, an employee must complete a minimum of 5 years of continuous service with the same employer. However, the 5-year requirement is completely waived if termination occurs due to death or permanent disablement of the employee.
The law considers that a working month comprises 26 working days after excluding 4 statutory weekly rest days (Sundays). Dividing monthly salary by 26 provides the true statutory daily wage rate for calculating the 15-day entitlement.
For establishments not covered by the Act, gratuity is calculated as (15 × Average monthly salary of last 10 months × Completed years of service) ÷ 30. Unlike covered employees, fractions of a year are completely ignored.
The maximum statutory tax exemption limit for private sector and PSU employees is ₹20,00,000 (enhanced from ₹10 lakh in 2018). This ₹20 lakh cap is a cumulative lifetime limit covering all gratuity exemptions claimed across your entire working career.
No. Central and State Government employees, defense personnel, and employees of local authorities enjoy 100% tax exemption on the entire gratuity received under Section 10(10)(i) without any upper monetary ceiling.
For employees covered under the Act, if service in the final year exceeds 6 months (e.g., 6 years and 7 months), it is rounded up to the next full year (7 years). If the fraction is 6 months or less (e.g., 6 years and 5 months), it is rounded down to 6 years.
Yes. Employers can offer gratuity above statutory limits as part of employment contracts or ex-gratia policies. However, any amount received above the Section 10(10) statutory limit (₹20 lakh) is taxable as salary income.
An employer can forfeit gratuity only if the employee was formally terminated for riotous conduct, acts of violence, moral turpitude, or wilful destruction of company property (restricted to the extent of property damage incurred). Voluntary resignation cannot be grounds for forfeiture.
Yes. Gratuity is payable on resignation, provided you completed at least 5 continuous years of service with the employer. Resignation is legally recognized as termination of employment under Section 4(1)(b).
Under Section 7(3A) of the Act, if an employer fails to pay gratuity within 30 days of the due date, they are legally obligated to pay simple interest on the delayed sum at 10% per annum from the due date until the date of actual payment.