Gratuity Calculator India 2026: Formula, Eligibility, Taxation & Maximum Amount
Gratuity is a statutory benefit paid by employers to employees who have completed at least 5 years of continuous service. It's governed by the Payment of Gratuity Act, 1972 for companies with 10+ employees. For millions of Indian employees, gratuity is a significant lump-sum payout on retirement, resignation, or death — yet many don't know how it's calculated or how much they're entitled to.
Try Gratuity Calculator Free →Gratuity Formula — Payment of Gratuity Act, 1972
For employees covered under the Gratuity Act: Gratuity = (Last drawn salary × 15 / 26) × Years of service
Where: Last drawn salary = Basic + Dearness Allowance (DA). 15 = 15 days pay. 26 = Working days in a month (excluding 4 Sundays). Years = Rounded to nearest year (6+ months rounds up, less than 6 months rounds down).
Example: Basic + DA ₹50,000/month, 8 years 7 months service → Rounds to 9 years → Gratuity = (50,000 × 15/26) × 9 = ₹2,59,615.
Gratuity for Employees NOT Under the Act
For employees in companies not covered by the Gratuity Act (less than 10 employees) but where the employer voluntarily pays gratuity: Gratuity = (Last drawn salary × 15 / 30) × Years of service
Note: 30 instead of 26 (calendar days). This results in a lower payout. Example: ₹50,000/month, 9 years → (50,000 × 15/30) × 9 = ₹2,25,000.
Gratuity Eligibility Rules
Minimum 5 years of continuous service required (4 years 240+ days counts as 5 years in some court interpretations). Triggered on: resignation (5+ years), retirement, death (any duration — paid to nominee), permanent disability (any duration), retrenchment. Contract and daily wage workers covered if employed continuously. Apprentices generally not covered.
Gratuity Maximum Limit 2026
The maximum gratuity payable under the Payment of Gratuity Act is ₹25,00,000 (₹25 lakh). This limit was last revised from ₹10L to ₹20L in 2018 and then ₹20L to ₹25L effective November 2020. Government employees under Central Civil Services rules have no upper limit — they receive full formula-based gratuity. Private sector employers can voluntarily pay more than ₹25L, but the excess is taxable.
Gratuity Taxation
Government employees: Gratuity fully tax-exempt (no limit). Private employees covered by the Gratuity Act: Exempt up to ₹25L or actual amount, whichever is lower. Excess over ₹25L is taxable at slab rate. Private employees NOT covered by the Act: Exempt up to ₹10L, ½ × monthly salary × years of service, or actual amount — whichever is least. Gratuity received on death/disability is fully exempt for all.
When is Gratuity Paid?
Gratuity must be paid within 30 days of it becoming payable. If delayed beyond 30 days, the employer must pay simple interest at prescribed rates. If gratuity is not paid, the employee can file a complaint with the Controlling Authority (typically Regional Labour Commissioner). The employer must not forfeit gratuity except in specific cases of misconduct causing financial damage.
Frequently Asked Questions
Does gratuity include allowances?⌄
No. Gratuity is calculated only on Basic Salary + Dearness Allowance (DA). HRA, special allowance, incentives, bonuses, and other components are excluded. This is why a high-CTC employee with low basic has lower gratuity than expected.
Can gratuity be forfeited?⌄
Yes, but only partially. An employer can forfeit gratuity to the extent of damage/loss caused by the employee's misconduct. Full forfeiture is only allowed if the employee's services are terminated for moral turpitude offences. Resignation or normal termination cannot result in forfeiture if eligibility is met.
What happens to gratuity if the employee dies?⌄
Gratuity becomes payable immediately to the nominated beneficiary (or legal heir if no nominee). The 5-year service requirement is waived for death or disability. The nominee receives the full formula-based amount (or proportionate for shorter service), fully tax-exempt.
Is gratuity applicable to contract employees?⌄
Contract employees on company payroll who have worked continuously for 5+ years are eligible for gratuity. However, employees hired through a contractor/agency may receive gratuity from the contractor, not the principal employer, depending on the arrangement.