Gratuity Calculator India – Instantly Calculate Your Gratuity Online (FY 2025-26)
Your Complete Guide to Gratuity Calculation in India (FY 2025–26)
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What is Gratuity? Meaning, Eligibility & Rules in India (Updated FY 2025–26)
Gratuity is a statutory financial benefit employers pay to employees in appreciation of continuous long-term service. Typically given at resignation, retirement, or termination, gratuity acts as a significant financial cushion for employees who've served their employer for several years.
Governed by the Payment of Gratuity Act, 1972, gratuity in India has clear regulations regarding eligibility, calculation methods, and disbursement timelines. It applies to both private and government sector employees, provided the organization employs at least 10 individuals on any single day in the past 12 months.
Under the Gratuity Act, gratuity becomes payable upon:
- Retirement or superannuation
- Resignation after at least 5 years of continuous service
- Death or permanent disability (5-year service requirement waived)
Check official provisions here: Payment of Gratuity Act, 1972 – Income Tax India.
For FY 2025–26, gratuity remains vital for retirement planning, financial security, and overall employment benefits. It frequently constitutes a critical part of an employee’s Cost to Company (CTC).
Gratuity Eligibility in India: Who Qualifies Under the Act?
Eligibility for gratuity is not automatic. The Payment of Gratuity Act, 1972 clearly defines who qualifies. The most prominent rule is known as the “5-Year Rule”.
To be eligible, employees must typically satisfy the following conditions:
- Completion of at least 5 years of continuous employment with the same employer.
- The organization must employ at least 10 people (in either private or government sector).
- Exceptions: In case of employee death or permanent disability, the 5-year requirement does not apply.
Have you resigned after just 4 years and 8 months? Courts have confirmed eligibility in such cases, equating 4 years and 240 days (about 8 months) to 5 full years. This landmark ruling was established in Mettur Beardsell Ltd vs Regional Labour Commissioner (1998).
Continuous employment definition: Periods of paid leave, maternity leave, or minor interruptions (such as illness, accidents, strikes) count as continuous service. Only formal termination or long-term unpaid breaks typically disrupt this continuity.
How to Calculate Gratuity – Official Formula & Detailed Example (FY 2025–26)
Gratuity calculation in India is governed by a clear and official formula under the Payment of Gratuity Act, 1972. This formula helps determine the lump-sum amount based on your last drawn salary and total years of completed service.
Let's clarify each component:
- 15: Represents 15 days' salary for every year of completed service.
- Last Drawn Salary: Comprises your Basic Salary + Dearness Allowance (DA).
- 26: Denotes the assumed number of working days in a month.
This is widely recognized as the 15/26 rule and applies to nearly all organizations in India covered under the Act, including both private and public sector employees.
Alternate Scenario: If your employer is not covered under the Payment of Gratuity Act (which is uncommon), the gratuity formula slightly differs:
Gratuity = (15 × Last Salary × Completed Years of Service) ÷ 30
Here, a standard 30-day calendar month is considered. However, the 15/26 rule applies to over 95% of salaried individuals in India.
Gratuity Calculation Example (Updated for FY 2025–26)
| Parameter | Value |
|---|---|
| Last Drawn Salary (Basic + DA) | ₹40,000 |
| Completed Years of Service | 6 Years |
| Formula Calculation | (15 × 40,000 × 6) ÷ 26 |
| Estimated Gratuity Amount | ₹1,38,462 |
Calculation Result: The employee in this example receives approximately ₹1.38 lakh in gratuity, entirely tax-exempt as per current limits, assuming the organization falls under the Gratuity Act.
Gratuity Tax Exemption Rules – How Much is Tax-Free? (FY 2025–26)
Many employees ask, “Is gratuity taxable in India?” In short, gratuity is tax-free up to a defined limit, varying for government and private sector employees. Here’s a detailed overview of the gratuity tax exemption rules for FY 2025–26, aligned with the Payment of Gratuity Act, 1972.
Government Employees – Fully Tax-Exempt
Central and state government employees receive their entire gratuity payout completely tax-free, with no upper limit. This exemption applies automatically upon retirement, resignation, death, or disability.
Private Sector Employees – Tax-Free Limit of ₹20 Lakh
For private sector employees, gratuity is tax-free up to ₹20,00,000 over a lifetime, as specified in Section 10(10) of the Income Tax Act. Any gratuity amount exceeding ₹20 lakh is taxable as regular salary income.
"Least of the Three" Rule for Tax Exemption
The tax-exempt gratuity for private employees is determined by the lowest of these three values:
- The actual gratuity received from the employer.
- ₹20,00,000 (statutory exemption limit).
- Gratuity calculated by the official formula: (15 × Last Drawn Salary × Years of Service) ÷ 26.
Tax is applicable only on the gratuity amount exceeding the exempt threshold. Typically, the ₹20 lakh cap is the primary limiting factor for most mid- and senior-level professionals.
Remember, the ₹20 lakh exemption is cumulative. If you receive gratuity across multiple jobs, the lifetime total exempt amount cannot exceed ₹20 lakh.
For detailed guidelines, refer to the official source: Income Tax India – Gratuity Tax Treatment
How to Use Our Gratuity Calculator – Step-by-Step Guide
Our Gratuity Calculator helps you easily and accurately calculate gratuity online. Follow this simple step-by-step guide for a precise gratuity estimate based on your salary and service period.
- Enter Last Drawn Salary: Provide your monthly Basic Salary + Dearness Allowance (DA). The calculation excludes allowances like HRA or bonuses.
- Enter Your Service Duration: Specify your total completed years and additional months of service. The calculator automatically rounds up months beyond 6 to ensure accuracy.
- Check Your Eligibility: If your total service is below 5 years, gratuity typically won't apply, adhering to the 5-year eligibility rule under the Gratuity Act. Exceptions include cases of death or permanent disability.
- Get Your Gratuity Result: The calculator applies the official formula (15 × Salary × Years) ÷ 26, ensuring full compliance with the Payment of Gratuity Act, 1972.
- Use the Projection Feature: Activate the “Include Annual Salary Increment” option to forecast future gratuity amounts over the next 5 to 10 years. Adjust the annual increment percentage for accurate long-term financial planning.
Whether planning retirement, considering job changes, or forecasting long-term financial benefits, our gratuity calculator for FY 2025–26 offers precise insights into your tax-free gratuity entitlement, fully compliant with the latest Gratuity Act rules.
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Gratuity FAQs
According to the Payment of Gratuity Act, 1972, you're eligible for gratuity after completing at least 5 continuous years of service with the same employer. However, gratuity is payable even before completing 5 years in cases of death or disability.
Yes, as per a ruling by the Madras High Court (Mettur Beardsell Ltd vs Regional Labour Commissioner, 1998), employees who've served 4 years and 240 days (approximately 8 months) in the fifth year become eligible for gratuity. This landmark decision clarified ambiguity regarding the eligibility period.
Gratuity in India is calculated using the official formula under the Payment of Gratuity Act, 1972: (Last Drawn Salary × 15 × Completed Years of Service) ÷ 26. The 'Last Drawn Salary' includes your basic salary plus Dearness Allowance (DA), excluding other allowances like HRA or bonuses.
Gratuity calculation is based on your basic salary plus Dearness Allowance (DA). It doesn't include your gross salary components like House Rent Allowance (HRA), bonuses, or special incentives.
Your gratuity eligibility period is calculated based on completed years of service. If you have worked more than 6 months in the final year, it's rounded up to the next full year. For example, if you worked for 6 years and 5 months, gratuity will be calculated for 6 years. But if you've completed 6 years and 6 months or more, it is rounded up to 7 years.
As per current income tax laws (Section 10(10) of Income Tax Act), private-sector employees can receive up to ₹20 lakh as tax-free gratuity. Government employees, however, have no upper limit, and their entire gratuity amount is exempt from income tax.
The term '15/26' refers to 15 days of salary for each completed year of service, assuming 26 working days in a month. Companies not governed by the Payment of Gratuity Act typically use '15/30', reflecting a calendar month instead.
Yes, you can claim gratuity upon voluntary resignation if you've completed at least 5 continuous years with the same employer. Your employer is legally required to pay gratuity within 30 days from your last working day, according to the Payment of Gratuity Act.
While the gratuity calculation method remains similar, tax treatment differs significantly. Government employees receive fully tax-exempt gratuity with no monetary cap, whereas private-sector employees have a maximum tax exemption limit of ₹20 lakh.
Yes, employers typically include gratuity in your Cost to Company (CTC), as it's a statutory benefit payable after completing the requisite years of continuous service.
Under the Payment of Gratuity Act, 1972, your employer must pay gratuity within 30 days of your employment termination date. Any delays beyond this period attract interest penalties at rates stipulated by the Act.
Typically, gratuity is paid automatically by employers as part of your full and final settlement after resignation or retirement, provided you've completed the eligibility criteria (usually 5 years of continuous service). However, as per the Payment of Gratuity Act, 1972, it's advisable to formally submit an application using Form I to your employer, clearly requesting gratuity payment. Doing so creates an official record and helps avoid delays. Employers must settle gratuity payments within 30 days of your employment termination date.
Yes, contract employees are eligible for gratuity under the Payment of Gratuity Act, provided they've served continuously for at least 5 years with the same employer and meet the conditions defined by the Act.
Employers may only withhold gratuity in cases of termination due to misconduct that causes proven financial loss. Even in such cases, only the amount equivalent to the loss incurred can be withheld, as per the Payment of Gratuity Act.
If your employer denies or delays gratuity payment beyond 30 days, you can file a complaint with your local labor commissioner (the controlling authority under the Payment of Gratuity Act, 1972). Prompt legal intervention can ensure compliance.
Absolutely. Our Gratuity Calculator not only calculates your current eligible gratuity accurately based on your years of service and basic salary but also provides interactive projections. You can easily estimate your gratuity for 6, 7, 8, 9, or 10 years of continued service. Additionally, the tool includes options to set an average annual salary increment (e.g., 6%) to generate realistic gratuity growth scenarios presented visually in an interactive graphical chart.