How gratuity is calculated
Gratuity is a statutory payment under the Payment of Gratuity Act, 1972, made when you leave an employer covered by the Act. It is based on your last-drawn basic plus dearness allowance and your completed years of service.
The 15/26 fraction represents 15 days of pay for each completed year, treating a month as 26 working days.
Gratuity = (15 ÷ 26) × last-drawn monthly (basic + DA) × completed years
The five-year rule and rounding
You generally need five years of continuous service to be eligible. Below that the entitlement is nil, except where service ends due to death or disability, when the requirement is waived.
Beyond five years, a final part-year of six months or more is rounded up to a full year. So 7 years and 7 months counts as 8 years, while 7 years and 5 months counts as 7. Leaving a few months later can therefore be worth an entire additional year of gratuity.
The ₹20 lakh ceiling
Gratuity is capped at ₹20,00,000 for tax-free treatment. Where the formula produces more than this, the excess is handled differently and the calculator flags that the ceiling has been reached.
Note that the formula uses basic plus DA only — not your full CTC or gross salary. This is why gratuity is usually far smaller than people expect from a headline salary figure.
How is gratuity calculated in India?+
Gratuity = (15 ÷ 26) × last-drawn monthly basic plus DA × completed years of service. The 15/26 fraction is 15 days of pay per completed year, treating a month as 26 working days.
Do I get gratuity if I leave before 5 years?+
Generally no — five years of continuous service is the eligibility threshold, and below it the entitlement is nil. The requirement is waived where service ends because of death or disability.
Does 4 years and 7 months count as 5 years for gratuity?+
No. Eligibility is assessed first, and 4 years 7 months falls short of the five-year requirement. The six-month rounding rule applies to the years counted in the formula once you are already eligible, not to eligibility itself.
What is the maximum gratuity payable?+
The statutory tax-free ceiling is ₹20,00,000. Where the formula produces a larger figure, the amount above the ceiling is treated differently for tax purposes.
Is gratuity calculated on basic salary or CTC?+
On last-drawn basic plus dearness allowance only — not gross salary or CTC. This is why the payout is usually much smaller than a headline CTC figure would suggest.
Does 7 years and 7 months count as 8 years?+
Yes. Once you are eligible, a final stretch of six months or more rounds up to a full year, so 7 years 7 months is counted as 8 years in the formula.
Is gratuity taxable?+
For non-government employees covered by the Act, gratuity is exempt up to the statutory ceiling of ₹20,00,000, counted across your whole career rather than per employer. Anything above that is taxable as salary. Your own position can differ, so confirm it with a qualified tax professional.
Do I get gratuity if I resign rather than being let go?+
Yes. Gratuity is triggered by leaving after the qualifying period, whether through resignation, retirement or termination — the reason does not normally change the entitlement. The main exception is dismissal for specified misconduct, where it can be forfeited.
What is the 4 years and 240 days rule for gratuity?+
Some courts have held that a fifth year counts as continuous service once 240 days are worked, which would make an employee eligible before a literal five years. It is not applied uniformly across jurisdictions or employers, so treat it as contested rather than settled — this calculator uses the plain five-year threshold, and a borderline case is worth professional advice.
Does a company with fewer than 10 employees have to pay gratuity?+
The Payment of Gratuity Act applies to establishments with 10 or more employees, and an establishment once covered generally stays covered even if headcount later falls. Smaller employers may still pay gratuity voluntarily or by contract, in which case the terms are whatever your offer letter says.