Gratuity calculator
What is payable after five years, and how much of it is tax-free.
Payment of Gratuity Act formula; tax-free up to ₹20 lakh over a lifetime.
Figures are indicative. Thresholds, surcharge and current-year notifications are not fully modelled — confirm edge cases with your CA.
What this calculates
Gratuity is a lump sum an employer pays for continuous service, and it becomes payable after five years — except on death or disablement, where the five-year condition falls away. The amount is fixed by formula rather than negotiation, and a large part of it is exempt from tax up to a ceiling, which is why the payable figure and the taxable figure are two different numbers.
How it is worked out
- 1Take the last drawn salary — basic pay plus dearness allowance.
- 2Multiply it by fifteen, then by the number of completed years of service, and divide by twenty-six, being the working days in a month.
- 3A part-year over six months counts as a full year; six months or less is ignored.
- 4The exemption is the least of the amount actually received, the amount the formula gives, and the statutory ceiling.
- 5Anything above the exempt amount is taxable as salary.
Worked example
Last drawn basic plus DA of ₹60,000, with 10 years of service.
- Last drawn salary
- ₹60,000
- × 15 ÷ 26
- ₹34,615 per year of service
- × 10 years
- about ₹3,46,154
- Exempt
- the least of this, received, and the ceiling
Common questions
How is gratuity calculated?
Last drawn basic salary plus dearness allowance, multiplied by fifteen, multiplied by completed years of service, divided by twenty-six. A part-year of more than six months counts as a whole year.
How many years of service are needed for gratuity?
Five years of continuous service. The condition does not apply where employment ends because of death or disablement, in which case gratuity is payable regardless of the length of service.
Is gratuity taxable?
It is exempt up to the least of three amounts: the gratuity actually received, the amount the statutory formula produces, and the notified ceiling. Anything received beyond that is taxable as salary.
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