Gratuity is one of the few benefits with an exact legal formula behind it, but most employees only find out the number when they’re already leaving. Enter your last drawn salary and years of service to see what you’re actually entitled to under the Payment of Gratuity Act.
For employers covered under the Payment of Gratuity Act, 1972, gratuity is calculated as (15 x last drawn Basic+DA x years of service) / 26, where 26 represents the working days in a month used by the Act. A less common variant, / 30, applies to establishments not covered under the Act, which use a calendar-month basis instead. Service periods are rounded to the nearest year: more than 6 months in your final year of service rounds up to a full year, and 6 months or less rounds down.
The Act sets a 5-year minimum for continuous service, but courts have in several cases allowed gratuity after 4 years and 240 days, treating that as substantially equivalent to 5 years of continuous service. This isn’t guaranteed and depends on your specific case and employer, so don’t assume it applies without checking.
Just Basic+DA (Dearness Allowance), not your full CTC or gross salary. Allowances, bonuses, and other components aren’t included in the gratuity calculation.
Gratuity received by private-sector employees covered under the Act is tax-exempt up to Rs 20 lakh over your lifetime, across all employers. Amounts above that are taxable as salary income. Government employees receive full tax exemption on gratuity with no cap.
Under Section 4(6) of the Act, gratuity can be forfeited, wholly or partly, if an employee’s service is terminated for specific acts like riotous or disorderly conduct, or an offense involving moral turpitude, subject to due process. Ordinary performance-related termination doesn’t forfeit gratuity.
Wondering how gratuity fits into your overall CTC? See our Salary Breakup Calculator.