Gratuity in India 2026 — The Complete Guide
Gratuity is a lump-sum reward your employer pays you for long service, governed by the Payment of Gratuity Act, 1972. It is one of the most misunderstood components of an Indian salary — partly because it is calculated only on Basic + Dearness Allowance, not your full CTC, and partly because two rules trip everyone up: the 5-year eligibility condition and the ₹20 lakh tax-free cap. This calculator applies the exact statutory formula, checks your eligibility (including the little-known 4-years-240-days exception), and splits your payout into its tax-free and taxable parts.
How Gratuity Is Calculated
For employees covered by the Act (the common case — any establishment with 10 or more employees):
Gratuity = (15 × Last drawn salary × Years of service) ÷ 26
- 15 = 15 days' wages for every completed year of service.
- Last drawn salary = Basic + DA of your final month (not gross, not CTC).
- 26 = the number of working days in a month used by the Act.
- Years of service = completed years, with the final part-year rounded up if it is 6 months or more (so 7y 7m → 8 years, 7y 5m → 7 years).
Employees not covered by the Act use a different basis: (15 × average salary of the last 10 months × completed years) ÷ 30, with no rounding of the part-year. Government employees use the 15/26 basis and receive the whole amount tax-free. In the breakdown table above, the highlighted row is your entered tenure; the other rows show how the same salary would pay out at different lengths of service.
The ₹20 Lakh Tax Exemption — Section 10(10)
Gratuity is not automatically tax-free. How much escapes tax depends on who you are:
| Category | Tax treatment of gratuity |
|---|---|
| Government employee | Fully exempt — no upper limit |
| Private, covered by the Act | Exempt up to the least of: actual gratuity, ₹20,00,000, or 15/26 × last salary × completed years |
| Private, not covered | Exempt up to the least of: actual gratuity, ₹20,00,000, or half-month average salary × completed years |
The ₹20,00,000 ceiling is a lifetime limit across all employers, raised from ₹10 lakh with effect from 29 March 2018. Anything above the exempt amount is added to your "Income from Salary" and taxed at your slab. For most employees the gratuity is well under ₹20 lakh and is therefore entirely tax-free — but a long-tenured senior with a high Basic can cross it, and that excess is where this calculator's "Taxable portion" line matters.
Who Is Eligible for Gratuity?
- 5 years of continuous service with the same employer is the baseline requirement.
- 4 years + 240 days in the fifth year is treated as 5 years (the exception above).
- Death or disablement waives the 5-year rule entirely — the nominee or employee is paid regardless of tenure.
- Payable on resignation, retirement, superannuation, layoff, death or disablement — not only on retirement.
- Applies to employees of any establishment with 10 or more workers on any day in the preceding 12 months.
Gratuity Key Facts at a Glance (2026)
| Item | 2026 position |
|---|---|
| Governing law | Payment of Gratuity Act, 1972 |
| Covered formula | 15/26 × (Basic + DA) × years of service |
| Not-covered formula | 15/30 × avg 10-month salary × completed years |
| Salary base | Basic + Dearness Allowance only |
| Eligibility | 5 years continuous (or 4 yrs + 240 days; waived on death/disablement) |
| Part-year rounding | ≥6 months = 1 year (covered employees only) |
| Tax-free limit (private) | ₹20,00,000 lifetime — Section 10(10) |
| Government employees | Fully exempt, no cap |
| Payment deadline | Within 30 days; interest payable on delay |
| Claim form | Form I (to employer) |
Common Gratuity Mistakes to Avoid
- Calculating on CTC or gross. Gratuity is only on Basic + DA — using gross inflates the figure by 2–3×.
- Assuming you need exactly 5.0 years. 4 years and 240 days qualifies; don't resign at 4 years 9 months thinking you forfeit it.
- Forgetting the ₹20 lakh cap is lifetime. Gratuity from an earlier employer eats into the same exemption.
- Ignoring the 30-day deadline. If the employer delays beyond 30 days, you are owed simple interest — don't let it slide.
- Missing the nominee form. File Form F to nominate, so a death claim is paid without dispute.
Frequently Asked Questions
Is gratuity calculated on Basic or on the full salary?
Only on Basic + Dearness Allowance of your last drawn month. HRA, special allowance, bonus, LTA and reimbursements are all excluded, which is why gratuity is far smaller than people expect from their CTC.
Can I claim gratuity if I leave before 5 years?
Usually no — but completing 4 years and 240 days in the fifth year counts as 5 years under the Act, and the 5-year condition is waived altogether if you leave due to death or disablement. Outside those, under five qualifying years means no gratuity.
How much gratuity is tax-free in 2026?
Up to ₹20,00,000 over your lifetime for private employees (least of actual, ₹20 lakh, and the formula amount), and the full amount for government employees. The portion above the exemption is taxed at your income slab.
Is gratuity paid on resignation?
Yes. As long as you meet the qualifying service (5 years, or 4 years 240 days), gratuity is payable on resignation, not just retirement.
What if my employer refuses or delays gratuity?
Gratuity must be paid within 30 days of becoming due, with simple interest for any delay. If it is denied without a valid forfeiture ground, you can file a claim with the Controlling Authority under the Act. Employers can forfeit it only for proven wilful damage, riotous conduct, or an offence involving moral turpitude during service.
Does this calculator handle employees not covered by the Act?
Yes — choose "Private — NOT covered by Act" to switch to the 15/30 basis with no part-year rounding. For full accuracy the not-covered formula uses the average salary of your last 10 months; enter that average in the salary field for the closest result.