How is gratuity calculated?

For employers covered by the Act, it is 15 × last drawn salary × years of service ÷ 26, where salary means basic plus dearness allowance and 26 is the assumed number of working days in a month. Employers outside the Act commonly use a 30-day month instead, which produces a noticeably smaller figure.

Do I need five years of service?

Yes, five years of continuous service is the general requirement. The exceptions are death or disablement, where gratuity is payable regardless of tenure. Some courts have held that 4 years and 240 days counts as five for this purpose, but employers apply that inconsistently and it usually takes a dispute to enforce.

How are part years counted?

Service is rounded to the nearest year, with more than six months counting as a full year. Ten years and eight months counts as eleven; ten years and five months counts as ten. Exactly six months does not round up. That single rule can be worth a month of salary.

For employees covered by the Act, gratuity is exempt up to ₹20 lakh across your entire working life — not per employer. Anything above that is taxable at slab rates. Government employees receive it fully exempt. If you have already claimed exemption at an earlier job, only the unused balance is available.

What if my employer refuses to pay?

Gratuity is a statutory right, not a discretionary benefit. It must be paid within 30 days of becoming due, and interest is payable on delays. If it is withheld, you can file Form N with the Controlling Authority under the Act, which is usually the Labour Commissioner for your area.

Does the ₹20 lakh ceiling apply to everyone?

It is the limit on the tax exemption and on the statutory entitlement. An employer may voluntarily pay more, and many do for senior employees — but the excess is fully taxable in your hands at your slab rate.

Gratuity Calculator: Payment of Gratuity Act

How to use this calculator

Enter your last drawn salary — basic plus dearness allowance only, not your gross or CTC.
Enter completed years and additional months of service separately. The months matter more than you might expect.
Say whether your employer is covered by the Act, which changes the formula.

How the calculation works

For an employer covered by the Payment of Gratuity Act, 1972:

gratuity = (15 × last drawn salary × years of service) / 26

The 15 represents fifteen days of wages for each year worked. The 26 is the assumed number of working days in a month, which is what converts a monthly salary into a daily rate.

Employers outside the Act’s scope — fewer than ten employees — commonly use a 30-day month and count only completed years, which produces a noticeably smaller figure for the same service.

A worked example

Last drawn salary (basic + DA) of ₹50,000 a month, with 10 years and 8 months of service.

Eight months is more than six, so service rounds up to 11 years:

gratuity = (15 × 50,000 × 11) / 26
         = 82,50,000 / 26
         = 3,17,308


Gratuity payable	₹3,17,308
Years counted	11
Status	Eligible

Had those eight months been five, service would have counted as 10 years and the gratuity would be ₹2,88,462 — ₹28,846 less. Three months of calendar timing, worth more than half a month’s salary.

The two rules that decide most cases

Five years of continuous service

This is the general requirement, and it is strict. Leaving at four years and eleven months means no gratuity at all — despite the employer having provisioned roughly 4.81% of your basic every year and counted it in your CTC.

The exceptions are death or disablement, where gratuity is payable regardless of tenure.

Some High Courts have held that 4 years and 240 days counts as five years for this purpose. Employers apply that inconsistently, and enforcing it generally requires a dispute. Do not plan a resignation date around it.

Rounding at six months

Service is rounded to the nearest year, with more than six months counting as a full year. Exactly six months does not round up.

If you are near a boundary, this is worth checking before you resign. Seven months past a completed year is worth an extra 15 days of salary; five months is worth nothing.

Tax treatment

For employees covered by the Act, gratuity is exempt up to ₹20,00,000 across your entire working life — not per employer. If you claimed exemption at an earlier job, only the unused balance remains.

Anything above the ceiling is fully taxable at your slab rate. Government employees receive gratuity fully exempt with no ceiling.

An employer may voluntarily pay more than the statutory amount, and many do for senior staff. The excess is taxable in your hands.

Common mistakes to avoid

Using gross salary or CTC. The formula uses basic plus DA only. On a typical structure where basic is 40% of CTC, using CTC overstates the gratuity by roughly two and a half times.

Assuming it is discretionary. Gratuity is a statutory right, not a benefit the employer chooses to grant. It must be paid within 30 days of becoming due, and interest is payable on delays.

Forgetting it is already in your CTC. Employers include the gratuity provision in the package they quote you. You have been paying for it out of your own compensation all along — which is precisely why leaving before five years is such a poor outcome.

Counting notice period incorrectly. Whether your notice period counts towards continuous service depends on whether you actually served it or were paid in lieu. Serving it usually counts; buying it out usually does not.

If your employer will not pay

Gratuity is enforceable. If it is withheld, file Form N with the Controlling Authority under the Act — usually the Labour Commissioner for your area. There is no fee, and the authority can order payment with interest.

Employers sometimes withhold gratuity pending “clearance” of company property or alleged dues. They may only deduct for damage or loss caused by your wilful act, and only after a proper enquiry. A blanket withholding is not lawful.

When this calculator is not the right tool

For what your offer actually pays each month, use the take-home salary calculator — it shows the gratuity provision sitting inside your CTC. For the tax on any amount above the ceiling, use the income tax calculator. And for central or state government service, different rules apply entirely, including pension-linked gratuity that this formula does not model.

Gratuity Calculator