Gratuity Calculator India

How to calculate gratuity in India (private employees)

If you work in a shop, office, factory or other establishment that is covered — in practice, most private companies with ten or more employees — gratuity is not a gift. It is a statutory terminal payment. The online gratuity calculator on this page is a 15/26 implementation of that rule, not a “package” guess from CTC.

The formula the Act uses is: take your last drawn monthly wages, divide by 26 to get a daily wage, multiply by 15 days, then multiply by completed years of service. Written in one line that is (last drawn salary × 15 × years) ÷ 26. Last drawn salary here is basic pay plus dearness allowance. It is not CTC, not gross, and not in-hand.

Years are completed years. If you served seven years and seven months, the extra months exceed six, so the calculator treats it as eight years. Six months exactly does not round up. That “greater than six months” detail is where a lot of HR spreadsheets quietly disagree with the statute; we follow the statute.

What is the 15/26 formula?

Fifteen is the number of days’ wages the law grants for each year. Twenty-six is the working-day convention: a month minus four Sundays. Using 30 instead of 26 shrinks the payout (15/30 is half a month; 15/26 is a little more than half). Covered establishments should not casually switch the denominator to 30 unless they are outside the Act and following a different contract.

Example: last drawn basic+DA ₹80,000, ten completed years, covered. Gratuity = 80,000 × 15 × 10 / 26 ≈ ₹4,61,538. Change the salary or years in the calculator to see the same arithmetic update.

The 5-year rule — and the exceptions

Eligibility normally needs five years of continuous service with that employer. Resignation, retirement and superannuation all sit behind that gate. Death and disablement do not: the 5-year rule is waived, which is why the calculator has a toggle. Under the Code on Social Security, 2020, fixed-term employees can receive pro-rata gratuity after one year. We expose that as an explicit option so a three-year contract is not silently zeroed.

Continuous service has its own case law around breaks, illegal lockouts and maternity. This page does not litigate those facts. If your break-in-service is messy, the calculator can still show the formula amount; eligibility is a legal question.

Covered vs non-covered establishments

Covered typically means the Payment of Gratuity Act (now housed in the Social Security Code) applies — ten or more employees on any day in the last twelve months is the usual trigger, and coverage continues even if headcount later dips. Covered employers must use the statutory formula and cannot pay less than it. They also face a ₹20 lakh ceiling on the amount payable under the Act.

Non-covered employers may still promise gratuity in the appointment letter. For tax, the exemption formula for non-covered private employees is different: a half-month’s average salary (often 15/30 × last 10 months’ average × years), still capped at ₹20 lakh lifetime. The calculator’s non-covered mode is that 15/30 sketch. It will not invent a company policy you do not have.

₹20 lakh exemption and tax on gratuity

For private employees, tax-free gratuity is the least of (a) what you actually received, (b) ₹20 lakh, and (c) the statutory formula amount. The ₹20 lakh figure is a lifetime ceiling across employers. Government employees are on a different, fully exempt track; this tool is not for them.

If your formula amount is ₹18 lakh, the whole thing is typically exempt. If an employer pays ₹25 lakh, ₹20 lakh is the usual exemption ceiling and ₹5 lakh is taxed as salary in the year of receipt — unless a later notification says otherwise. As of 2026 the private-sector tax ceiling remains ₹20 lakh even though central government limits have moved. Do not assume a Budget headline about “government gratuity” rewrote your private Form 16.

The Income-tax Act, 2025 is in force from 1 April 2026 and renumbers older sections; it does not, by itself, change this 15/26 / ₹20 lakh picture. If your payroll cites “as per new law”, ask them whether they mean the labour codes’ wage definition (which can raise basic+DA) or an actual change to 15/26. This gratuity calculator as per current 2026 practice still uses 15/26 for covered staff.

What this tool does not do

It does not apply forfeiture for riot or moral turpitude, does not split a last-drawn “50% wage” reconstruction under the Code on Wages, and does not file your ITR. For offer-letter modelling, pair this with the CTC to in-hand salary calculator. Gratuity accruing inside CTC (~4.81% of basic) is not the same rupee as the lump sum you receive when you leave.