Service & Salary Parameters
Rounding Rule: Exact year count — 5 years used for calculation.
Statutory Breakdown🧾
How gratuity is actually calculated
Gratuity is a lump sum your employer owes you when you leave after enough years of continuous service — a legal entitlement under the Payment of Gratuity Act, not a discretionary bonus. The formula is fixed: 15 days of your last drawn basic salary (plus dearness allowance, if your employer pays it) for every year you worked, using a 26-day working month as the basis.
The eligibility threshold
You need at least 5 years of continuous service for gratuity to apply. Leave at 4 years and 11 months and the standard rule gives you nothing. Continuity matters too: authorized leave doesn't break service, but a genuine gap in employment can.
The 6-month rounding rule
If your final partial year is more than 6 months, it rounds up to a full year. Six months or less, it's dropped. 12 years and 7 months = 13 years; 12 years and 5 months = 12. That single month either side of the mark can be worth a full extra year of gratuity.
Why 15/26, not exactly half?
The Act treats a working month as 26 days (4 Sundays off), and gratuity is 15 days of wages per year. 15÷26 comes out slightly above half a month's salary — a common mental shortcut that undershoots the real figure slightly.
The ₹20L tax-free ceiling
For most private-sector employees, gratuity is exempt from tax up to ₹20,00,000 — a lifetime limit across all employers. Anything above that is taxed as regular income. Government employees face no ceiling; their gratuity is fully exempt.
This calculator assumes a clean, continuous stretch of service at a single employer with one final basic salary figure. It doesn't model a break in service or complex transfer scenarios. If your situation involves those, treat this as an estimate — HR or a labour law professional can confirm your exact figure.
Frequently asked questions
Do I need exactly 5 years of service to get gratuity?
Yes — 5 years of continuous service is the standard eligibility threshold under the Payment of Gratuity Act. There are narrow exceptions (death or disability end employment early), but for a normal resignation or termination, 5 years is the line.
How does the 6-month rounding rule actually work?
If your final, incomplete year of service is more than 6 months, it counts as a full extra year in the calculation. If it's 6 months or less, it's dropped entirely. Someone with 9 years and 7 months is treated as 10 years; someone with 9 years and 4 months is treated as 9.
Is gratuity fully tax-free?
For most private-sector employees, it's exempt up to ₹20,00,000 over your lifetime, across all employers. Anything above that lifetime limit is taxable as income. For government employees, gratuity is fully exempt with no ceiling.
What counts as 'last drawn salary' in the formula?
Basic salary plus dearness allowance (DA), at the time you leave — not your full CTC, and not including HRA, bonuses, or other allowances. If your basic salary changed shortly before you left, it's the final figure that counts.
Does this apply to all employers?
The Payment of Gratuity Act applies to organizations with 10 or more employees. If your employer has fewer, gratuity may still be paid voluntarily or under a company policy, but it isn't a legal entitlement in the same way — check your employment contract or HR policy if you're unsure.
Why is the formula 15/26 instead of just half a month's pay?
The Act defines a month as 26 working days (assuming 4 Sundays off), and gratuity is calculated as 15 days' wages for every year of service. 15 divided by 26 is that fraction — it comes out close to, but not exactly, half a month's salary per year.
This is an estimate for informational purposes, not tax advice. Verify with a chartered accountant or at incometaxindia.gov.in before making financial decisions.
Last verified: August 2026 · FY 2026-27 rates