Calculator · Payment of Gratuity Act
Gratuity Calculator: the 15/26 Formula and the ₹20 Lakh Ceiling
Enter your basic + DA and years of service, and see what your employer owes on exit, how the 6-month rounding works, and how much of it the taxman can touch.
After 12 years and 7 months of service, your gratuity works out to
₹6,00,000
Exempt vs taxable split
| Gratuity payable (15/26 × ₹80,000 × 13) | ₹6,00,000 |
| Exemption ceiling † (lifetime, across all employers) | ₹20,00,000 |
| Tax-exempt gratuity | ₹6,00,000 |
| Taxable gratuity (added to your salary income) | ₹0 |
The exemption works the same under both regimes, and government employees are fully exempt whatever the amount. If your employer pays more than the formula figure, the excess is taxable even below the ceiling. † Ceiling pending CA verification, including its section number in the Income-tax Act 2025. See every assumption.
How the gratuity math works
The covered formula:15 days of pay for every year of service, where a month is counted as 26 working days. So: last-drawn monthly basic + DA × 15/26 × years of service. The 15/26 fraction is why gratuity is a little better than “half a month per year”: it works out to 57.7% of a month's pay per year rather than 50%.
The rounding rule: service of 6 months or more in the final year rounds up to a full year. Twelve years and 7 months counts as 13 years; twelve years and 5 months stays 12. Timing an exit around that 6-month line is worth real money: at a ₹80,000 basic, one extra qualifying year is about ₹46,154.
Not covered by the Act:the tax-exemption formula tightens in three ways: half a month (15/30) instead of 15/26, the average of your last 10 months' basic + DA instead of last drawn, and completed years only, with no rounding up.
The tax split: the exemption is the least of the amount received, the formula amount and the ₹20,00,000 lifetime ceiling. Whatever crosses the least-of-three line is added to your salary income and taxed at your slab rate, under either regime.
Eligibility: 5 years of continuous service with the employer, waived entirely on death or disablement. Resignation, retirement and termination (other than for certain misconduct) all qualify once you cross the line.
Worked example: last-drawn basic + DA of ₹80,000 a month, 12 years and 7 months of service, employer covered by the Act. The 7 months round the count up to 13 years. Gratuity = ₹80,000 × 15/26 × 13 = ₹6,00,000. That's under the ₹20 lakh ceiling, so every rupee is tax-exempt. The calculator above returns exactly these figures for these inputs.
This calculator assumes:
- You're a private-sector employee. Government employees are fully exempt from tax on gratuity, with no ceiling, and this calculator's exempt/taxable split doesn't apply to them.
- The salary you enter is basic + DA only (plus turnover-linked commission if any), not your full monthly pay. For the not-covered case it should be the 10-month average.
- The employer pays exactly the formula amount. If yours pays more, the excess is taxable even below the ceiling; if a contract promises less than the Act's formula, the Act prevails for covered employees.
- You haven't used any of the ₹20 lakh lifetime exemption at earlier employers. If you have, reduce the ceiling by what's already claimed.
- The ₹20,00,000 ceiling is the notified figure for employees covered by the Act (†); its section number under the Income-tax Act 2025 is pending Gazette verification.
Gratuity FAQs
Can I get gratuity before completing 5 years?
Two ways. First, the 5-year condition disappears entirely on death or disablement; the employer pays for the service actually rendered, to the employee or the nominee. Second, several High Courts (following the Madras High Court's Mettur Beardsell line) have accepted 4 years and 240 days of service in the fifth year as good enough. That second route isn't uniform across the country and employers routinely resist it, so treat it as a claim worth making, not a guarantee.
Is gratuity taxable, and does the regime choice matter?
For private-sector employees covered by the Act, gratuity is exempt up to the formula amount, capped at ₹20 lakh across your lifetime; anything above is taxed as salary. The exemption is one of the survivors of the new regime: it comes from the old Section 10(10), not from the Chapter VI-A deductions the new regime removed, so you keep it under either regime. Government employees are fully exempt with no ceiling at all.
Which salary counts: my full pay or just basic?
Only basic plus dearness allowance, and commission earned as a fixed percentage of turnover if that applies to you. HRA, special allowance, bonus and perquisites are all excluded. That's why two colleagues with identical CTCs can retire with different gratuity: the one whose structure carries a higher basic wins. For covered employees it's the last-drawn figure; for uncovered ones, the average of the final 10 months.
What changes if my employer isn't covered by the Act?
The Act covers every establishment with 10 or more employees, so exclusion is rare. Outside it, gratuity is contractual and the tax exemption uses a stingier formula: half a month's salary (15/30 instead of 15/26) on the 10-month average rather than last drawn, and only completed years count; 9 years and 11 months is 9 years. The calculator's toggle switches between both rule sets.
Is the ₹20 lakh limit per employer or for life?
For life. The ceiling applies to the total of all gratuity exemptions you ever claim, across every job. If you received ₹8 lakh exempt from a previous employer, only ₹12 lakh of headroom remains for the next one. Employers don't track this for you; it surfaces when you file, so keep your own running total.
My employer pays better than the formula. Is the extra tax-free?
No. The exemption is the least of three things: what you actually receive, the formula amount, and the ₹20 lakh ceiling. A more generous payout is welcome money but the excess over the formula is taxed as salary in the year you receive it, even if you're nowhere near ₹20 lakh.