What the Gratuity Act pays when you leave
Gratuity is a lump sum an Indian employer must pay to an employee who leaves after five or more years of continuous service, under the Payment of Gratuity Act, 1972. It is not a bonus and not discretionary: the formula is in the statute, and this calculator applies it.
The formula
Salary means basic pay plus dearness allowance, not the total CTC. The 15/26 fraction is fifteen days' pay for each year, on a 26-working-day month.
Worked example: ₹50,000 salary, 10 years
- Fifteen days' pay: 50,000 × 15 / 26 = ₹28,846 per year of service
- Gratuity: ₹2,88,462
- That is 5.77 months of salary
Salary and years
| Last salary (basic + DA) | Years | Gratuity |
|---|---|---|
| ₹50,000 | 10 | ₹2,88,462 |
| ₹50,000 | 15 | ₹4,32,692 |
| ₹80,000 | 10 | ₹4,61,538 |
| ₹50,000 | 25 | ₹7,21,154 |
Years are rounded: six months or more in the final year counts as a full year, so 9 years and 7 months pays as 10. Because the formula uses the last salary, every raise before leaving raises the gratuity on all past years too.
The five-year rule
Below five years of continuous service there is no statutory entitlement — 4 years and 11 months pays nothing, 5 years pays ₹1,44,231 on the example salary. Death or disablement removes the condition. Courts have treated 4 years and 240 days as five years in some rulings, but employers do not have to.
Tax
Gratuity received by a private-sector employee covered by the Act is exempt from income tax up to ₹20 lakh across a lifetime; central government employees get ₹25 lakh. On the example, the full ₹2,88,462 is tax-free. Amounts above the ceiling are taxed as salary in the year received.
Employees not covered by the Act
Establishments with fewer than ten employees are outside the Act. Those employers may pay gratuity under their own policy, commonly at half a month's salary per year — ₹25,000 × 10 = ₹2,50,000 on the example instead of ₹2,88,462 — and the tax exemption uses the same half-month basis.
What this calculator leaves out
The 20-lakh cap, the rounding of part years, and contractual gratuity above the statutory minimum that some employers offer.
Related calculators
- EPF calculator — the other retirement sum that leaves with you
- NPS calculator — where the gratuity often gets invested
- HRA exemption — the other salary-based tax rule