Gratuity Calculator India 2026

Gratuity in India 2026 — The Complete Guide

Gratuity is a lump-sum payment your employer pays you when you leave a job after putting in long service. It is governed by the Payment of Gratuity Act, 1972, and for most salaried Indians it sits between ₹1 lakh and ₹20 lakh when they finally collect it. The rules look simple but trip up a lot of people: the 5-year eligibility, the 15/26 formula, the 6-month rounding, and the often-misunderstood ₹20 lakh tax exemption. This page walks through every one of them, with the 2026 numbers built in.

Who Is Eligible for Gratuity?

You qualify if all three are true:

• You have completed 5 years of continuous service with the same employer (waived for death or disablement).
• The establishment had 10 or more employees on at least one day in the preceding 12 months — this brings the employer under the Act.
• You are exiting via resignation, retirement, termination, death, or disablement — not absconding or being dismissed for moral turpitude.

If your company falls below 10 employees today but was ever above 10 in the past, the Act still applies — coverage is "once covered, always covered".

The Gratuity Formula (Covered Employees)

For employees covered by the Payment of Gratuity Act, the statutory formula is:

The 6-month rule, made simple

• 4 years 11 months → not eligible (below 5-year cut-off)
• 5 years 5 months → counts as 5 years
• 5 years 7 months → rounds up to 6 years
• 10 years 6 months → still 10 years (must be more than 6 months)
• 12 years 8 months → 13 years

The Gratuity Formula (Non-Covered Employees)

If your employer is not covered (very small private firms with under 10 employees ever, or some specific exempt categories), the formula is slightly different:

Gratuity = (Last drawn salary × 15 × N) / 30

Two differences from the covered formula:

• Denominator is 30 instead of 26 — so you get a smaller amount per year of service.
• No 6-month rounding — fractions of a year are computed directly (e.g., 7.5 years = 7.5 in the formula).

Worked Examples

Example 1: Covered employee, software engineer

• Basic + DA at exit: ₹80,000/month
• Years of service: 7 years 8 months → rounds to 8
• Gratuity = (80,000 × 15 × 8) / 26 = ₹3,69,231
• Tax-exempt: full amount (under ₹20 lakh cap)
• Net in-hand: ₹3,69,231

Example 2: Covered employee, senior manager (above cap)

• Basic + DA at exit: ₹2,50,000/month
• Years of service: 22 years 3 months → 22 years
• Gratuity = (2,50,000 × 15 × 22) / 26 = ₹31,73,077
• Tax-exempt: ₹20,00,000 (cap)
• Taxable: ₹11,73,077 — added to salary income, taxed at slab
• At 30% slab → tax outflow ≈ ₹3,51,923
• Net in-hand: ≈ ₹28,21,154

Example 3: Non-covered employee, family business

• Basic only (no DA): ₹40,000/month
• Years of service: 9 years 5 months → 9.42 years (no rounding)
• Gratuity = (40,000 × 15 × 9.42) / 30 = ₹1,88,400
• Tax-exempt; full in-hand.

Tax Treatment Under Section 10(10)

The ₹20 lakh cap is lifetime, cumulative — if you received ₹8 lakh exemption on a previous job's gratuity, only ₹12 lakh is available now.

When Can Gratuity Be Forfeited?

Section 4(6) of the Act lets the employer withhold gratuity (fully or partly) only in narrow cases:

• Wilful damage or loss to the employer's property — forfeit equal to the loss
• Riotous or disorderly conduct, or any act of violence on duty — partial forfeit
• Conviction for an offence involving moral turpitude in the course of employment — full forfeit possible

Simple resignation, normal termination, or even being fired for performance does not forfeit gratuity. Many employees walk away from rightful gratuity because HR misrepresents the rules.

How and When Will You Receive It?

1. Submit Form I to the employer within 30 days of leaving (form is short — name, period of service, reason for leaving).
2. Employer must compute and pay within 30 days of receipt of the form.
3. Delay attracts simple interest at the SBI prevailing rate (currently around 6.85% p.a.) on the unpaid amount.
4. If employer refuses, file with the Controlling Authority (Labour Commissioner's office). The case is summary in nature — usually resolved within 6 months.

Common Mistakes That Cost Real Money

• Confusing CTC with last drawn salary. Only Basic + DA enters the formula. HRA, bonuses, special allowances do not.
• Forgetting the 6-month round-up. Working 7 years 7 months and being told "you have 7 years gratuity" is a one-year underpayment.
• Believing the 5-year rule is absolute. Death and disablement waive the 5-year requirement entirely.
• Accepting "the company is not covered". If the firm ever had 10+ employees, it is covered for life.
• Missing the lifetime cap on the tax exemption. The ₹20 lakh is cumulative across all employers in your career.

Frequently Asked Questions

What is the gratuity formula in India?

For covered employees: (Last drawn Basic + DA × 15 × Years of service) / 26. For non-covered: divide by 30 instead of 26.

Is 5 years of service mandatory for gratuity?

Yes, except in cases of death or disablement. The Supreme Court has clarified that 4 years 240 days also qualifies as 5 years in some jurisdictions (Madras HC interpretation), but not all employers honour this — be prepared to litigate if relying on it.

Is gratuity tax-free in India?

Up to ₹20 lakh for private-sector covered employees. Government employees: 100% tax-free, no cap. Anything above ₹20 lakh is taxed at your slab rate.

How does the 6-month rounding rule work?

If the last partial year exceeds 6 months, round up. Equal to or below 6 months — ignore. Only applies to covered employees; non-covered uses fractional years directly.

What if my employer refuses to pay gratuity?

File Form N with the Controlling Authority (Labour Commissioner) in your jurisdiction. Carry proof of service, last salary slip, Form I copy, and the resignation acceptance letter.

Can I receive gratuity from multiple employers in a year?

Yes. Each employer pays separately. But the ₹20 lakh tax exemption is lifetime-cumulative across all employers — so the second employer's gratuity may be largely taxable.