Use Basic + Dearness Allowance. Do not include HRA or other allowances.
6+ months rounds up to next year as per the Gratuity Act.
What is Gratuity and When Are You Eligible?
Gratuity is a lump-sum payment made by an employer to an employee as a token of gratitude for their service. It is governed by the Payment of Gratuity Act, 1972 — a statutory right, not discretionary.
You are eligible if: (1) you have completed 5 years of continuous service, (2) your employer has 10 or more employees. Gratuity is payable on resignation, retirement, death, or disablement.
The tax exemption limit for gratuity is ₹20 lakh for private sector employees. Any amount above ₹20 lakh is taxable as salary income in the year of receipt.
Gratuity Formula — Payment of Gratuity Act
Where: Basic Salary = last drawn basic + dearness allowance. 15 = half month's salary per year. 26 = working days in a month (statutory — not 30 or 31).
Rounding Rule
If additional months ≥ 6, round up to next full year. So 10 years 7 months = 11 years for calculation. 10 years 4 months = 10 years.
Example — ₹50,000 basic, 10 years
Gratuity = (50,000 × 15 × 10) ÷ 26 = ₹7,500,000 ÷ 26 = ₹2,88,462. Fully tax-free as it is under ₹20 lakh limit.
Example Calculation
Frequently Asked Questions
Gratuity = (Last Drawn Basic Salary × 15 × Years of Service) ÷ 26. The 15 represents half a month's salary per year of service, and 26 is the statutory number of working days in a month under the Payment of Gratuity Act, 1972.
For private sector employees, gratuity up to ₹20 lakh is completely tax-free. Any amount above ₹20 lakh is added to your income and taxed at your applicable slab rate in the year of receipt. Government employees receive full tax exemption with no upper limit.
5 years of continuous service is the minimum requirement. However, if you have completed 4 years and 6 months or more, it rounds up to 5 years — making you eligible. Less than 4 years 6 months does not qualify.
Gratuity is calculated on Basic Salary + Dearness Allowance only — not on CTC. HRA, special allowances, bonus, and other components are excluded. This is why your actual gratuity may be lower than online estimates that use total salary.
No — resignation before completing 5 years (or 4 years 6 months) does not entitle you to gratuity under the Payment of Gratuity Act. However, some companies have their own gratuity policies that pay out earlier — check your employment contract.
Related Calculators
Disclaimer: Results are for informational and educational purposes only — not financial, tax, or legal advice. Tax slabs, rates (EPF, PPF, home loan), and rules shown are based on data available in 2025 and may change. Always verify with a qualified professional or official government sources before making financial decisions.