Gratuity is a statutory benefit paid by employers to employees who have completed 5 or more years of continuous service. Under the Payment of Gratuity Act, 1972, the maximum tax-exempt gratuity has been raised to ₹25 lakh (from ₹20 lakh). Our calculator computes your exact gratuity using the official formula, checks eligibility, handles service year rounding rules, and shows the taxable portion if applicable.
Gratuity Calculation Formula
For employees covered under the Gratuity Act: Gratuity = (Last Drawn Salary × 15 × Years of Service) / 26. "Last Drawn Salary" includes basic pay + dearness allowance. The divisor is 26 (working days in a month). For employees not covered under the Act: Gratuity = (Last Drawn Salary × 15 × Years of Service) / 30.
Eligibility & Service Rounding Rules
You must complete 5 years of continuous service (4 years 240 days in the same company). Service years are rounded: 6 months or more counts as a full year (e.g., 7 years 7 months = 8 years). Less than 6 months is rounded down. Death or disability exempts the 5-year minimum requirement.
Gratuity Tax Exemption Limits (2026)
Government employees receive fully tax-exempt gratuity. For private sector employees, gratuity is exempt up to the least of: (a) ₹25 lakh, (b) actual gratuity received, or (c) eligible gratuity as per the formula. Any amount exceeding ₹25 lakh is taxable at your income tax slab rate.
New Gratuity Rules: Labour Code Changes
The proposed Labour Code may reduce the eligibility period from 5 years to 1 year for fixed-term contract employees. It may also change the definition of "wages" to include a broader set of components. While not yet fully enacted, these changes could significantly increase gratuity payouts for many workers.
Gratuity for Private vs Government Employees
Government employees receive gratuity under CCS (Pension) Rules with no upper cap on tax exemption. Private sector employees are governed by the Payment of Gratuity Act with the ₹25 lakh cap. Some private companies voluntarily pay higher gratuity, but the tax exemption remains capped.