What is the Gratuity?
Gratuity is a statutory lump sum paid when you leave a job after completing five years of continuous service. It is governed by the Payment of Gratuity Act, which covers establishments with 10 or more employees.
Up to ₹20 lakh of gratuity is exempt from income tax over your lifetime. Anything above that is taxable at your slab rate.
Formula & worked example
The statutory formula uses a 26-day month:
Worked example: last basic+DA of ₹60,000 with 12 years of service → 60,000 × (15/26) × 12 = ₹4,15,385. That is fully within the ₹20 lakh exemption, so you receive it tax-free. For employers not covered by the Act, the formula uses 15/30 instead, producing a smaller amount.
How to use this gratuity calculator
- Enter your last drawn basic plus DA, not gross salary.
- Enter completed years. Service beyond 6 months in the final year rounds up.
- Select whether your employer is covered by the Act (10+ employees).
- Check the tax-free portion against the ₹20 lakh lifetime cap.
Smart tips
- Five years of continuous service is the qualifying threshold, waived only in cases of death or disability.
- A period over 6 months in the final year counts as a full year — 12 years 7 months is treated as 13.
- The ₹20 lakh exemption is a lifetime limit across all employers, not per job.
- Gratuity is calculated on your last drawn basic, so a promotion just before leaving increases the entire payout.
Frequently asked questions
What is the minimum service for gratuity?
Five years of continuous service. The requirement is waived if service ends due to death or permanent disability.
Is gratuity taxable?
Up to ₹20 lakh is exempt over your lifetime for private-sector employees. Government employees receive full exemption.
How is gratuity calculated?
Last drawn basic plus DA × 15/26 × completed years of service, for employers covered by the Gratuity Act.
Do I get gratuity if I resign?
Yes, provided you have completed five years. Gratuity is payable on resignation, retirement or termination alike.
Want the theory behind the numbers? Browse the Money Blog for worked guides.
Written by Gurjeet Singh, Sharpen Solutions. Last reviewed 15 Oct 2026. Sources: Ministry of Labour & Employment — Payment of Gratuity Act, 1972, s.4: 15 days’ wages, 26-day divisor. How we check these numbers.