Gratuity Calculator India — Payment of Gratuity Act, FY 2026-27

How this gratuity calculator works

Our gratuity calculator applies the Payment of Gratuity Act 1972 (Act No. 39 of 1972) formula correctly for both Act-covered and non-Act-covered employers. The gratuity calculator takes three inputs — last drawn basic + DA, completed years of service, and the Act-covered flag — and returns the gratuity payable, the tax exemption under Section 10(10) of the Income Tax Act 1961, and the taxable portion (if any) above the ₹20 lakh cap.

Gratuity calculator formulas (Act-covered vs non-Act)

The gratuity calculator picks the right formula based on whether the employer falls under the Payment of Gratuity Act 1972 (establishments with 10 or more employees at any time in the preceding 12 months).

• Act-covered (15/26): Last drawn monthly (Basic + DA) × 15/26 × completed years of service. The gratuity calculator uses 26 as the divisor representing working days in a month.
• Non-Act-covered (15/30): Last drawn monthly (Basic + DA) × 15/30 × completed years of service. The gratuity calculator uses 30 as the divisor (calendar days). Employers with < 10 employees historically or establishments outside the Act’s scope use this formula; employees cannot compel payment in this category but most employers voluntarily pay.
• Central / State Government: Full gratuity exempt from tax under Section 10(10)(i) — the Section 10(10) cap doesn’t apply. The gratuity calculator flags this with zero taxable component regardless of amount.

Using the gratuity calculator: step-by-step

1. Enter your last-drawn monthly basic + DA (retirement-linked only). The gratuity calculator uses this as the multiplier base — not gross salary, not CTC, only basic + DA.
2. Enter your completed years of service. The Payment of Gratuity Act counts service ≥ 6 months in the final year as a full year (rounding convention). The gratuity calculator applies this rounding when you enter decimals.
3. Toggle the Act-covered flag. Most corporate employers with 10+ employees fall under the Act — default is “yes”.
4. Indicate if you’re a Government employee. If yes, the gratuity calculator sets Section 10(10) exempt amount to the full gratuity.

The gratuity calculator output shows: gross gratuity payable, Section 10(10) exempt amount, taxable gratuity (if any), and the formula applied.

Gratuity calculator examples (FY 2026-27)

Three worked scenarios through the gratuity calculator:

• Mid-career private-sector: last basic + DA ₹75,000/month, 12 years service, Act-covered. Gratuity calculator output: ₹5,19,231 (75K × 15/26 × 12). Section 10(10) exemption covers full amount (under ₹20L cap). Taxable: zero.
• Senior-level, exceeds cap: last basic + DA ₹2,50,000/month, 30 years service, Act-covered. Gratuity calculator output: ₹43,26,923 gross. Section 10(10) exemption capped at ₹20L; taxable portion: ₹23,26,923 added to salary income.
• Government employee: last basic + DA ₹1,80,000/month, 25 years service. Gratuity calculator output: ₹25,96,154. As Government employee, fully exempt under Section 10(10)(i) — no Section 10(10)(ii) ₹20L cap applies. Taxable: zero.

When is gratuity payable? Gratuity calculator eligibility

The gratuity calculator requires minimum qualifying service for a valid output:

• 5 years of continuous service: the default Payment of Gratuity Act 1972 minimum (Section 4 eligibility). Service of 4 years 8+ months counts as 5 under Supreme Court interpretation.
• No minimum on death or disablement: the gratuity calculator still computes the gross amount; actual payment is at employer / nominee’s claim. The Section 4(1) proviso waives the 5-year requirement, and Section 10(10) exemption applies without the 5-year threshold for death / disablement cases.
• Continuous service definition: 240 days in 12 months for non-seasonal establishments (190 days for below-ground mine work). Approved leave counts; strike / lock-out periods don’t unless authorised.

Gratuity calculator output: Section 10(10) exemption

The gratuity calculator applies three exemption categories:

• Section 10(10)(i) — Government: Central, State, Defence, statutory corp employees. The gratuity calculator marks the full amount exempt.
• Section 10(10)(ii) — Act-covered: least of (a) actual gratuity received, (b) ₹20,00,000 lifetime cap (per CBDT Notification S.O. 1213(E) dated 8 March 2019), (c) 15/26 × last salary × completed years. The gratuity calculator returns the minimum.
• Section 10(10)(iii) — non-Act-covered: least of (a) actual, (b) ₹20,00,000 lifetime cap, (c) half month’s average salary × completed years.

Important: the ₹20L cap is a lifetime cap — across all employers. If you received gratuity from a previous employer, the remaining cap available is ₹20L minus prior exempt amount. The gratuity calculator does not know your prior history; verify against Form 16 records before declaring.

Gratuity calculator: common mistakes to avoid

• Using gross salary instead of basic + DA. The gratuity calculator multiplier is only basic + DA. Using gross inflates the output by 40-60%.
• Ignoring the 5-year minimum. The gratuity calculator produces a number for any input, but under 5 years of service no gratuity is legally owed (except in death / disablement cases).
• Double-counting previous exemption. If you’ve claimed Section 10(10) exemption from an earlier employer, the remaining cap is less than ₹20L. The gratuity calculator doesn’t track this — you must self-adjust.
• Mixing up Act-covered status. If in doubt, ask HR. Most tech companies (> 10 employees) are Act- covered; very small firms aren’t. The gratuity calculator’s Act-covered toggle matters — 15/26 vs 15/30 is an 8.8% difference in the output.

Gratuity calculator FY 2026-27 updates

The ₹20,00,000 Section 10(10)(ii) / (iii) cap was raised from ₹10L in March 2018 and has remained at ₹20L through FY 2026-27. The gratuity calculator on this page applies the current cap. Any future Budget revision will be reflected in the “last updated” date at the top.

Tax planning with the gratuity calculator

High-earner scenarios where the gratuity calculator output exceeds ₹20L Section 10(10) cap:

• Spread over multiple employers: the ₹20L cap is lifetime. Switching employers doesn’t reset the cap, but delaying a large gratuity to a lower-income year can reduce marginal tax on the taxable portion.
• Timing of resignation: resigning in April vs March shifts the taxable gratuity to a different FY. If the next FY sees you earning less (sabbatical, early retirement), the taxable portion is taxed at a lower slab.
• Encashment + gratuity combination: leave encashment has its own Section 10(10AA) exemption (₹25L lifetime cap for private-sector from Aug 2023). Plan both line items holistically.

How is gratuity calculated in India?

In India, gratuity is calculated under the Payment of Gratuity Act 1972 using a deterministic formula tied to your last-drawn basic salary plus dearness allowance and your completed years of continuous service. The gratuity calculator on this page applies the statutory formula corresponding to your employer’s coverage status — Act-covered (15/26) or non-Act-covered (15/30) — and then applies Section 10(10) of the Income Tax Act 1961 to determine the tax-exempt portion.

The formula is intentionally simple so disputes are minimised, but three input categories drive the result: (1) salary base (only basic + DA — never gross, never CTC, never including HRA or bonus), (2) completed service in years (with the 6-month rounding rule for Act-covered employers), and (3) employer category (private under Act, private outside Act, or Central / State Government).

What is the gratuity formula?

Two formulas apply depending on whether your employer is covered by the Payment of Gratuity Act 1972:

• Covered by the Act: Gratuity = (15 × last drawn basic + DA × years of service) / 26. The 15 is the statutory 15 days’ pay; the 26 is the assumed working-day denominator (deducting 4 Sundays per month). Years are rounded up if you have ≥ 6 months in the final year.
• Not covered by the Act: Gratuity = (15 × last 10 months’ average basic + DA × years of service) / 30. The 30 is the calendar-day denominator. Years are counted strictly — no 6-month rounding. The salary base is the average of the last 10 months (not just the final month).

The difference matters: 15/26 ≈ 0.577 months of salary per year of service, while 15/30 = 0.5 months — a roughly 15% larger payout for Act-covered employees on the same base salary.

Worked example: ₹50,000 last drawn × 12 years (Act-covered)

Suppose an employee’s last drawn basic + DA is ₹50,000 per month, they have completed 12 years of continuous service, and the employer is covered by the Payment of Gratuity Act 1972. Plugging the numbers into the gratuity formula:

• Step 1 — Apply the formula: Gratuity = ₹50,000 × 15 × 12 / 26.
• Step 2 — Compute: ₹50,000 × 15 = ₹7,50,000; ₹7,50,000 × 12 = ₹90,00,000; ₹90,00,000 / 26 = ₹3,46,153.85, rounded to ₹3,46,154.
• Step 3 — Apply Section 10(10) exemption: ₹3,46,154 is less than the ₹20,00,000 lifetime cap, less than actual amount received (same), and equal to the Act-computed amount. The entire ₹3,46,154 is exempt from income tax.
• Step 4 — Taxable portion: ₹0. The employee takes home the full ₹3,46,154 with no tax deduction.

If the same employee had completed 25 years on a basic + DA of ₹2,00,000, the gratuity would be ₹2,00,000 × 15 × 25 / 26 = ₹28,84,615 — exceeding the ₹20 L Section 10(10)(ii) cap. The first ₹20 L would be tax-free; the balance ₹8,84,615 would be added to salary income and taxed at the marginal slab.

Is gratuity taxable in India?

Gratuity is taxable under the head “Salaries” but carries one of the most generous exemptions in Indian personal tax law via Section 10(10) of the Income Tax Act 1961. Three buckets:

• Section 10(10)(i) — Central, State, Defence, local-authority, and statutory-corporation employees: 100% exempt, no cap whatsoever. This is why government gratuity cheques arrive untouched.
• Section 10(10)(ii) — Private-sector employees of Act-covered establishments: exempt up to the least of (a) actual gratuity received, (b) ₹20,00,000 lifetime cap, (c) 15/26 × last basic + DA × completed years. Anything above the minimum is taxable at slab.
• Section 10(10)(iii) — Private-sector employees not covered by the Act: exempt up to the least of (a) actual, (b) ₹20,00,000 lifetime cap, (c) half-month’s average salary × completed years.

What is the minimum service for gratuity?

The statutory minimum is 5 years of continuous service with the same employer, set by Section 4(1) of the Payment of Gratuity Act 1972. “Continuous service” is defined in Section 2A — interruption only occurs on actual break-in-service, not authorised leave, lay-off, lock-out, maternity leave, sickness, or industrial dispute. The Madras High Court (Mettur Beardsell, 1998) and the Supreme Court (Surendra Kumar Verma, 1980) have read 4 years and 240 days (i.e., 4 years 8 months for non-seasonal establishments) as satisfying the 5-year requirement.

The 5-year minimum is waived under the proviso to Section 4(1) in two cases: (a) death of the employee, and (b) permanent disablement due to accident or disease. In both cases gratuity is payable for the actual completed service period — even a few months — with the death gratuity going to the registered nominee or, failing that, the legal heirs.

Is gratuity ₹20 lakh tax-free?

Yes — for private-sector employees, gratuity up to ₹20,00,000 is tax-free under Section 10(10)(ii) of the Income Tax Act 1961, provided the formula also permits it. The cap was raised from ₹10 L to ₹20 L by the Payment of Gratuity (Amendment) Act 2018 (Act No. 12 of 2018), notified via CBDT Notification S.O. 1213(E) dated 8 March 2019, and remains at ₹20 L through FY 2026-27. The 2018 Amendment Act also extended the “continuous service” period to deem paid maternity leave (up to 26 weeks) as continuous service. Two important qualifications:

• It is a lifetime cap, not a per-employer cap. If you received tax-free gratuity of ₹12 L from a previous employer, only ₹8 L of exemption remains for your next claim. The ITR Form 16 records this — disclose previous gratuity to your new employer’s payroll to avoid mismatched TDS.
• The exemption is the least of three values, so even if your gratuity is under ₹20 L, you only get exemption up to the Act-formula amount or the actual receipt — whichever is lower. If your employer pays more than the Act formula requires (a generous ex-gratia top-up), the excess is taxable even if total stays under ₹20 L.

PSU vs private sector — what’s the difference?

The tax treatment of gratuity differs sharply by employer category — the ₹20 L cap is not universal:

• Central / State Government, Defence, local authorities, statutory corporations — fully exempt under Section 10(10)(i). No cap. Whether the gratuity is ₹15 L or ₹50 L, the entire amount is tax-free. PSU employees of statutory corporations (LIC, RBI, ONGC, etc.) typically fall here.
• Other Public Sector Undertakings (companies incorporated under the Companies Act, e.g., SBI, BHEL, NTPC employees) — taxed like private sector. Section 10(10)(ii) ₹20 L lifetime cap applies. CBDT has clarified that “Government employee” under Section 10(10)(i) does not extend to PSU staff unless the PSU is constituted by a Central or State Act.
• Private sector under the Act — Section 10(10)(ii) ₹20 L lifetime cap. Most IT companies, banks, manufacturers, retail chains with ≥ 10 employees.
• Private sector outside the Act — Section 10(10)(iii) ₹20 L lifetime cap, but using the 15/30 formula and 10-month-average salary base.

Practically: if you’re in central government service you can ignore the ₹20 L number entirely; if you’re in a listed PSU (incorporated as a Company), treat yourself as private-sector for gratuity tax purposes.

Payment of Gratuity Act 1972 — quick reference

The Payment of Gratuity Act 1972 (Act No. 39 of 1972), last materially amended by the Payment of Gratuity (Amendment) Act 2018 (Act No. 12 of 2018) raising the cap to ₹20 L and the maternity-leave deemed-continuous-service period to 26 weeks. Key sections relevant to most employees:

• Section 4 — Payment of gratuity: eligibility (5 years continuous service), death/disablement exception, formula (Section 4(2) — 15 days’ wages for every completed year using 15/26), forfeiture grounds (Section 4(6) — wilful damage, riotous conduct, moral turpitude). Read the full text on the Ministry of Labour PDF (Section 4).
• Section 7 — Determination & recovery: employer must pay within 30 days of the gratuity becoming due (Section 7(3)) and 10% simple-interest penalty for delay under Section 7(3A).
• Section 10(10) of the Income Tax Act 1961: the exemption framework — clause (i) for Government, Section 10(10)(ii) for Act-covered private (₹20L cap, lifetime), (iii) for non-Act private. The ₹20 L cap is set via CBDT notification — most recently Notification S.O. 1213(E) dated 8 March 2019, applying retrospectively from 29 March 2018.
• Statutory forms (Payment of Gratuity Central Rules 1972): Form I (employee claim), Form L (employer notice of payment), and Form N (application to the Controlling Authority for appeal/recovery).

How to claim gratuity from your employer

The Payment of Gratuity (Central) Rules 1972 lay down a strict paper trail. The five steps below mirror the schema:

1. Submit Form I within 30 days of becoming eligible. Death cases use Form J (nominee) or Form K (legal heir without nomination). Per Rule 7(5), late submission cannot be a ground for rejection.
2. Employer issues Form L within 15 daysspecifying the amount payable and the date of payment.
3. Employer pays gratuity within 30 days of it becoming payable, per Section 7(3) of the Payment of Gratuity Act 1972.
4. Claim 10% simple interest for delay under Section 7(3A), running from the due date to the date of actual payment.
5. File Form N before the Controlling Authority (Labour Commissioner) if the employer refuses, underpays, or fails to determine. Appeal under Section 7(7) within 60 days. The Controlling Authority can recover gratuity as arrears of land revenue and can also award the 10% interest.

Integrating the gratuity calculator with retirement planning

Gratuity is one lump-sum component of your retirement corpus. Don’t plan around it in isolation:

• Run gratuity calculator output alongside EPF maturity in the Retirement Calculator
• Cross-check with UPS / NPS projections if you’re a Government employee via the UPS Calculator
• Use the taxable portion (if any) in your Income Tax Calculator to estimate year-of-retirement tax liability