Gratuity Calculator 2026

What is Gratuity and Who is Eligible?

Gratuity is a lump sum amount that an employer pays to a departing employee as a token of appreciation for their sustained services. Governed by the Payment of Gratuity Act, 1972, it is an essential component of the Cost to Company (CTC) structure.

Eligibility: The strict rule is that you must have completed a minimum of 5 continuous years of service in the exact same organization. If you leave a company at the 4-year and 11-month mark, the company is not legally obligated to pay you a single rupee of gratuity. (Exceptions exist in the case of disablement or death).

Gratuity Formula Explained with Examples

For organizations covered under the Gratuity Act (having 10 or more employees), the calculation is based on the 15/26 logic:

• 15: Represents 15 days of salary given for each year.
• 26: Represents the number of working days in a month.
• Last Drawn Salary: This means your Basic Pay + Dearness Allowance (DA). Your HRA, Special Allowances, or bonuses are NOT included.

Rounding Rule: If you have worked for 5 Years and 7 Months, your tenure for calculation is rounded up to 6 Years. If you worked for 5 Years and 5 Months, the tenure is effectively 5 Years.

Example: Suppose your last Basic+DA was ₹50,000 and your tenure was 5 years.
Calculation: (15 × 50,000 × 5) / 26 = ₹1,44,230

Gratuity Act — Which Companies Must Pay?

Any factory, mine, oilfield, plantation, port, railway company, or any shop/establishment that employs 10 or more persons on any day in the preceding 12 months is covered by the Payment of Gratuity Act. Once covered, the establishment remains covered even if the employee count drops below 10. Startups, IT companies, and large corporate houses all fall under this mandate.

Is Gratuity Taxable? (₹20L Exemption Rule)

Gratuity payouts are subject to taxation, but they enjoy a massive exemption under Section 10(10) of the Income Tax Act.

• Private Sector Employees (Covered): Tax exempt up to ₹20,00,000 (Twenty Lakhs). Any amount received above this limit over your entire lifetime is fully taxable as per your slab.
• Government Sector Employees: The entire gratuity amount is 100% tax exempt. There is no upper ceiling here.

Note: The ₹20 Lakh exemption limit is a cumulative lifetime limit. If you received ₹5 Lakhs tax-free from your first employer, your remaining tax-free limit for all future employments drops to ₹15 Lakhs.

When is Gratuity Paid?

Your employer is bound to release the gratuity payout within 30 days of it becoming payable. It is triggered by:

1. Resignation from the company (after 5 years of service)
2. Retirement or Superannuation
3. Death or Disablement due to accident or disease (5-year rule is bypassed)

Government vs Private Sector Gratuity Difference

While the mathematical formula to generate the gratuity capital is identical across standard covered sectors, the tax treatment is not. Government employees enjoy absolute tax shielding on their gratuity, meaning even if their gratuity generates ₹30 Lakhs, the taxable part remains zero. Private sector professionals must pay tax on the excess ₹10 Lakhs in that scenario.