The formula
For employers covered by the Payment of Gratuity Act — broadly, those with ten or more employees — the statutory formula is:
The 26 is the number of working days in a month under the Act, and the 15 represents fifteen days' wages for each completed year. "Salary" means basic pay plus dearness allowance, not your full cost to company — which is why the result is usually far smaller than people expect.
Employers not covered by the Act commonly use a 30-day month instead of 26, which produces a lower figure. The calculator handles both.
The five-year rule and how part years round
Gratuity normally requires five years of continuous service. Leaving at four years and eleven months usually means receiving nothing, which makes the timing of a resignation genuinely worth checking.
The exception is death or disablement, where the five-year condition does not apply.
Beyond five years, part years round on a six-month boundary: six months or more counts as a full year, less than six months is dropped. Seven years and seven months counts as eight; seven years and five months counts as seven. On a decent salary that rounding is worth a substantial amount, and it is another reason a departure date deserves a moment's arithmetic.
The tax-free ceiling
Gratuity received is exempt from tax up to a statutory ceiling — ₹20 lakh for non-government employees under current rules — applied cumulatively across your working life rather than per employer. Anything above the ceiling is taxable as income.
Government employees generally receive gratuity fully exempt.
What people get wrong
The most common error is using total salary rather than basic plus DA. If your basic is 40% of CTC, using CTC overstates your gratuity by roughly two and a half times.
The second is assuming gratuity is optional or discretionary. For covered employers it is a statutory obligation, payable within thirty days of becoming due, with interest applying on delay.
Rules and ceilings are as of August 2026 and can change. Confirm your entitlement with your employer or a qualified professional.
Frequently asked questions
How is gratuity calculated in India?
For employers covered by the Payment of Gratuity Act, gratuity equals 15 times your last drawn basic plus DA, times years of service, divided by 26. Employers not covered by the Act commonly divide by 30 instead.
Do I get gratuity if I leave before five years?
Normally no - five years of continuous service is required. The exception is death or disablement, where the condition does not apply. Leaving at four years and eleven months usually means receiving nothing.
How are part years counted for gratuity?
Six months or more counts as a full year; less than six months is dropped. Seven years and seven months counts as eight years, while seven years and five months counts as seven.
Is gratuity taxable?
It is exempt up to a statutory ceiling - Rs 20 lakh for non-government employees under current rules - applied cumulatively across your career rather than per employer. Amounts above the ceiling are taxable as income.