Monthly basic salary plus dearness allowance
Minimum 5 years required for gratuity eligibility. A part-year over 6 months counts as a full year (e.g. 5.7 → 6)

What is Gratuity?

Gratuity is a lump sum your employer must pay you for long service, under the Payment of Gratuity Act. The formula is:

Gratuity = (15 ÷ 26) × last drawn salary (basic + DA) × completed years of service

Anything beyond six months in your final year rounds up to a full year, so 7 years and 8 months counts as 8 years.

A Worked Example

Say your last drawn basic plus DA is ₹80,000 and you have served 12 years and 7 months. The months round up, so the calculation uses 13 years: (15 ÷ 26) × 80,000 × 13 comes to about ₹6 lakh, fully tax-free. Notice how much the final salary matters: the same tenure at ₹1.6 lakh basic doubles the payout. This is why the new Labour Codes' rule that "wages" must be at least 50% of total pay meaningfully raises gratuity for employees whose basic salary was kept low.

Who is Eligible?

Permanent employees qualify after 5 years of continuous service with the same employer, and the requirement is waived on death or disablement. There is an important recent change for fixed-term employees: under the Labour Codes effective 21 November 2025, they become eligible after just 1 year (minimum 240 days), on a pro-rata basis. The Codes also require employers to pay within 30 days, failing which 10% annual interest applies.

How is Gratuity Taxed?

For private-sector employees, gratuity is tax-free up to a lifetime limit of ₹20 lakh under Section 10(10). Anything above that is taxed at your slab, which you can check with the income tax calculator. Government employees' gratuity is fully exempt; their separate ₹25 lakh ceiling does not apply to the private sector, despite what some articles suggest.

How to Claim It

Apply on Form I within 30 days of leaving. Your right does not lapse if you are late, but promptness helps. Gratuity is payable on resignation, retirement, disablement or death, and on death the 5-year condition is waived and your nominee receives it. An employer cannot opt out of the Act, and only proven misconduct causing financial loss allows any forfeiture. Since gratuity usually arrives together with your EPF corpus, plan what the combined amount needs to fund with the retirement calculator.

FAQs about Gratuity Calculator

For establishments under the Payment of Gratuity Act: (15/26) × last drawn basic salary + DA × completed years of service, with more than six months in the last year rounding up to a full year.
Permanent employees after 5 years of continuous service with the same employer (waived on death/disablement). Since the Labour Codes took effect on 21 November 2025, fixed-term employees qualify after just 1 year (minimum 240 days) on a pro-rata basis.
Private-sector employees enjoy a lifetime exemption of up to ₹20 lakh under Section 10(10); anything above is taxable at your slab. Government employees' gratuity is fully tax-exempt. The ₹25 lakh figure sometimes quoted applies to Central Government employees only.
The Act covers establishments with 10 or more employees (and once covered, always covered). Employers outside the Act may still pay gratuity contractually, sometimes computed as 15/30 of monthly salary per year.
Courts have widely held that 4 years plus 240 days of continuous service in the fifth year satisfies the 5-year requirement, and many employers pay on this basis — but practice varies, so check your employer's policy and state jurisprudence.
Employers often show an annual gratuity provision (~4.81% of basic) inside CTC, but it is only payable as the statutory lump sum when you become eligible — leaving before eligibility forfeits it, which is worth weighing when timing an exit near the 5-year mark.