Gratuity Calculator FY 2026-27 — Payment of Gratuity Act 1972 + IT Act §10(10)

Gratuity Calculator — Compute Your Payable + Tax-Free Gratuity

How gratuity is calculated

The Payment of Gratuity Act 1972 sets the formula for most private-sector employees: (15/26) × last drawn salary × years of service. The 15/26 ratio represents 15 days’ wages per year, treating a month as 26 working days (subtracting Sundays).

For a senior employee earning ₹2 lakh basic+DA who completes 30 years of service:

Formula amount = (15/26) × 2,00,000 × 30 = ₹34,61,538
Tax-free under §10(10) = min(34,61,538, ₹20,00,000) = ₹20L
Taxable gratuity = ₹14,61,538

Coverage types

Type	Formula	Tax cap
Act-covered (most private)	(15/26) × salary × years	₹20L per §10(10)
Non-Act (orgs with <10 employees)	(15/30) × avg salary × years	₹20L per Finance Act 2018
Govt (CCS Pension Rules)	(15/26) × salary × years	Fully exempt under separate provision

Tax treatment

Per Income Tax Act §10(10), the tax-free portion is the lowest of:

Actual gratuity received
Formula amount per the Act
₹20,00,000 (lifetime cap)

Anything above the cap is added to your salary income and taxed at slab rate. The exemption applies in both old and new tax regimes — it’s an exclusion from total income, not a deduction.

Worked examples

Example 1 — Mid-career professional

₹50,000 basic+DA, 10 years of service, Act-covered:

Formula = (15/26) × 50,000 × 10 = ₹2,88,461
Tax-free = ₹2,88,461 (well below ₹20L cap)
Taxable = ₹0

Example 2 — Senior executive exceeding the cap

₹2,00,000 basic+DA, 30 years of service, Act-covered:

Formula = (15/26) × 2,00,000 × 30 = ₹34,61,538
Tax-free = ₹20,00,000 (capped)
Taxable = ₹14,61,538 — added to salary income and taxed at slab

Example 3 — Government officer

₹80,000 basic+DA, 25 years of service (CCS Pension Rules):

Formula = (15/26) × 80,000 × 25 = ₹11,53,846
Tax-free = ₹11,53,846 (below ₹20L cap; fully exempt)

Bridges

Income tax calculator — compute slab tax on the taxable gratuity portion
EPF calculator — your other retirement-corpus accumulator
Gratuity formula explained — deep dive into the 15/26 derivation and worked examples
Gratuity calculator for private employees — Act-specific rules for the private sector

Frequently Asked Questions

Who is eligible for gratuity?

Any employee with ≥5 years of continuous service in an organisation with ≥10 employees on any day in the preceding 12 months. Death and disability waive the 5-year minimum.

How is gratuity calculated for Act-covered employees?

Formula: (15/26) × last drawn basic+DA × years of service. The 15/26 captures 15 days' wages per year of service, treating a month as 26 working days. For 10 years at ₹50,000 basic+DA: (15/26) × 50,000 × 10 = ₹2,88,461.

What's the tax-free limit?

Per IT Act §10(10): the lower of (a) actual gratuity received, (b) formula amount, or (c) ₹20,00,000. Government employees get full exemption regardless of amount under a separate clause. Private employees pay tax on any excess above ₹20L.

Does part-year service count?

Per Section 4 of the Act, service exceeding 6 months in a year is rounded up to a full year. Service of 10 years 7 months = 11 years counted. Service of 10 years 5 months = 10 years counted.

What if I worked for less than 5 years?

Generally not eligible — except in cases of death or disability, where the 5-year minimum is waived. Some employers (especially in IT/BPO) pay ex-gratia gratuity below 5 years; that's contractual, not statutory.

Is gratuity available in the new tax regime?

Yes — §10(10) exemption applies regardless of regime choice. The exemption is not a deduction; it's an exclusion from total income before slab tax is computed.

How is gratuity above ₹20L taxed?

The excess is added to your salary income and taxed at your applicable slab rate. Use our Income Tax Calculator (/tax/income-tax-calculator/) to compute the final tax on the taxable gratuity portion.

Compliance disclaimer

The calculations on this page are illustrative based on current EPFO/PFRDA rules. Actual maturity values depend on contribution patterns, scheme rules in effect at maturity, and future rate changes. Educational content only — verify with EPFO/NSDL before financial decisions.