This Gratuity Calculator lets you calculate Gratuity Tax Exemption. Gratuity is the amount of payment made by an employer to an employee in appreciation of the past services rendered by the employee, which is received at the time of retirement or in the event of death. The maximum gratuity tax exemption that an employee can avail of is Rs. 20,00,000.
Find out exactly how much of your gratuity is tax-free and how much gets added to your taxable income — enter your basic pay, dearness allowance, and years of service to get an instant, accurate breakdown.
Gratuity is a lump-sum benefit an employer pays to an employee as recognition for long-term service. It's typically received when an employee retires, resigns after a qualifying period, or leaves the organisation, and it's paid on top of — not instead of — regular salary and other retirement benefits like PF or pension.
An employee generally becomes eligible for gratuity after completing 5 years of continuous service with the same employer. This 5-year condition does not apply if the employee dies or becomes disabled during service — in these cases, gratuity is payable regardless of tenure.
Update: Under the new Labour Codes, effective 21 November 2025, fixed-term employees become eligible for gratuity after just 1 year of continuous service, instead of the earlier 5-year requirement. This shorter qualifying period currently applies to fixed-term/contract employment; permanent employees continue to need 5 years of service. Confirm the latest applicability with your HR or payroll team, since implementation rules are still being clarified by the Ministry of Labour and Employment.
Once the 5-year (or, for fixed-term employees, 1-year) qualifying period is met, gratuity becomes payable in the following situations:
The employer is required to determine and pay the gratuity amount within 30 days of it becoming due.
Gratuity received during employment or at retirement is taxable under the head 'Income from Salary'. If it's paid to a nominee or legal heir following the employee's death, it's taxed under 'Income from Other Sources' in the recipient's hands instead.
Need help claiming the right exemptions on your gratuity and filing your return correctly?
An employee can claim a tax exemption on gratuity up to a maximum of Rs. 20,00,000 under Section 10(10) of the Income-tax Act. How much is actually exempt depends on which of the three categories below applies:
Use the calculator above with your own basic pay, dearness allowance, and years of service to see your exact exempted and taxable gratuity amounts.
The four new Labour Codes took effect on 21 November 2025, and two changes directly affect how gratuity is calculated and who qualifies for it.
Fixed-term and contract employees no longer need to wait 5 years to qualify for gratuity — 1 year of continuous service is now enough. This brings gig, project-based, and contract staff into the gratuity net far earlier than before. Permanent employees continue under the existing 5-year rule.
Under the new wage definition, at least 50% of an employee's total compensation must now be counted as 'wages' (basic pay + dearness allowance + retaining allowance) for statutory calculations, including gratuity. If allowances previously pushed basic pay below this 50% threshold, the excess is now added back into wages for gratuity purposes.
In practice, this means many employees — especially those whose CTC structure leaned heavily on allowances rather than basic pay — will see a higher gratuity payout, since the formula is applied to a larger wage base. Employers, in turn, may need to account for a larger gratuity liability. These changes apply prospectively from 21 November 2025; service rendered before that date is not recalculated under the new definition.
For employees covered under the Payment of Gratuity Act, 1972, the standard formula is:
Gratuity = (Last Drawn Salary + Dearness Allowance) × Number of Completed Years of Service × 15/26
These numbers represent a working-days convention used specifically for this formula: 26 approximates the number of working days in a month (a 6-day work week), and 15 represents half a month's wages — the rate at which gratuity accrues for each completed year of service. So for every year worked, you effectively earn 15 days' wages as gratuity.
This is an illustrative calculation only. Use the calculator above with your own figures — and remember that if you're a fixed-term employee or your wage structure has changed under the new Labour Codes, your actual eligibility or payout may differ from a simple manual calculation.
Any establishment — commercial or non-commercial, including hospitals and educational institutions — that has employed 10 or more people on any day in the preceding 12 months is covered under the Payment of Gratuity Act, 1972.
Yes. Contractual employees are eligible for gratuity, and the contractor is primarily responsible for paying it. If the contractor fails to do so, the responsibility falls on the principal employer.
No — under the standard rule, an employee needs at least 5 completed years of service with the same employer to qualify for gratuity, though a Madras High Court ruling has held that completing 240 days in the fifth year can count as a full year for this purpose. This 5-year condition doesn't apply in case of death or disability. For fixed-term employees, the new Labour Codes reduce this qualifying period to 1 year.
Yes. An employer can forfeit gratuity, wholly or partly, if the employee is terminated for proven misconduct, including acts of violence or offences involving moral turpitude committed during employment.
Any establishment employing 10 or more people on any day in the preceding 12 months, whether commercial or non-commercial, including hospitals and educational institutions.
Yes. The contractor is responsible for paying gratuity to contract employees; if they don't, the principal employer becomes liable.
The employer must determine and pay the gratuity amount within 30 days of it becoming payable.
After completing one year of service, you can file a nomination using Form F with your employer.
The standard requirement is 5 completed years of service, though the 240-days-in-the-fifth-year interpretation from case law is sometimes applied. Death or disability waives this condition entirely.
Employers typically account for gratuity in CTC at roughly 4.81% of basic salary, based on 15 days' pay per year of completed service, subject to the Rs. 20,00,000 exemption ceiling for tax purposes. Actual payout still follows the statutory formula, not the CTC provisioning figure.
Using the same formula as regular gratuity: (Last Drawn Salary + Dearness Allowance) × Number of Completed Years of Service × 15/26.
26 stands in for the working days in a month, and 15 represents half a month's wages — the amount of gratuity that accrues for each completed year of service.
It's calculated on Basic Pay plus Dearness Allowance — not on the full CTC or gross salary. Under the new wage definition, this base may now be larger for employees whose allowances previously exceeded 50% of total pay.
Multiply your last drawn Basic Pay + DA by 10 (years of service) and then by 15/26 — for example, at Rs. 50,000 per month, that's 50,000 × 10 × 15/26 ≈ Rs. 2,88,462.
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