Gratuity is a lump sum your employer pays when you leave after long service – a thank-you for your years with the company. Use this calculator to estimate your gratuity from your last drawn salary and years of service.
Gratuity formula
For employers covered by the gratuity law (10 or more employees):
Gratuity = Last drawn salary × 15 / 26 × Years of service
“15/26” means 15 days’ wages for every year, assuming 26 working days in a month. Last drawn salary means basic pay plus dearness allowance. If you have worked six months or more in your final year, it is rounded up to a full year.
For employers not covered: gratuity, if paid, is usually half a month’s salary per completed year: Salary × 15 / 30 × completed years.
Who is eligible?
- Permanent employees: 5 years of continuous service with the same employer.
- Fixed-term employees: just 1 year of continuous service under the Code on Social Security, which came into force with the new labour codes in November 2025.
- Death or disability: gratuity is payable regardless of tenure.
Example
Last drawn basic + DA of ₹60,000 a month and 7 years 7 months of service: the 7 months round up, so 8 years count. Gratuity = 60,000 × 15/26 × 8 = ₹2,76,923.
Is gratuity taxable?
For private-sector employees, gratuity is tax-free up to ₹20 lakh over your whole career. Government employees’ gratuity is fully exempt. Any amount above the limit is taxed as salary.
How the new labour codes affect gratuity
The labour codes require “wages” to be at least 50% of total remuneration. Companies that kept basic pay low must now count more of your pay as wages, which raises the salary used in the gratuity formula. If your basic was 30–40% of CTC, your future gratuity may increase.
Gratuity ready reckoner
Estimated gratuity under the 15/26 formula for different last-drawn salaries (basic + DA) and years of service:
| Monthly basic + DA | 5 years | 10 years | 15 years | 20 years |
|---|---|---|---|---|
| ₹25,000 | ₹72,115 | ₹1,44,231 | ₹2,16,346 | ₹2,88,462 |
| ₹50,000 | ₹1,44,231 | ₹2,88,462 | ₹4,32,692 | ₹5,76,923 |
| ₹75,000 | ₹2,16,346 | ₹4,32,692 | ₹6,49,038 | ₹8,65,385 |
| ₹1,00,000 | ₹2,88,462 | ₹5,76,923 | ₹8,65,385 | ₹11,53,846 |
| ₹2,00,000 | ₹5,76,923 | ₹11,53,846 | ₹17,30,769 | ₹20,00,000 (cap) |
Step-by-step example
Priya resigns after 9 years and 8 months. Her last drawn basic is ₹70,000 and DA is ₹5,000.
- Salary for gratuity = ₹70,000 + ₹5,000 = ₹75,000.
- 8 months is more than 6, so service counts as 10 years.
- Gratuity = 75,000 × 15 ÷ 26 × 10 = ₹4,32,692.
- This is below ₹20 lakh, so it is fully tax-free for her as a private-sector employee.
Gratuity in your CTC vs gratuity you receive
Many companies show 4.81% of basic as “gratuity” in CTC. That figure is simply 15/26 ÷ 12 – one year’s gratuity spread over 12 months. If you leave before becoming eligible, you don’t receive it, which is why it shouldn’t be treated as part of your take-home pay.
When can gratuity be forfeited?
An employer can forfeit gratuity, wholly or partly, if you are terminated for misconduct that caused damage or loss to the company (to the extent of that loss), or for riotous or violent behaviour, or an offence involving moral turpitude committed during employment. Simple resignation or layoff does not allow forfeiture once you are eligible.
How to claim gratuity
- Most employers pay it automatically with your full-and-final settlement.
- If not, apply in writing (Form I is used in many states) within 30 days of it becoming payable.
- If your employer refuses or delays, you can approach the controlling authority under the gratuity law in your state.
Real-life scenarios
- IT professional: 6 years 3 months with last basic ₹55,000 → 6 years count → ₹1,90,385.
- Long-serving manager: 22 years with last basic + DA ₹1,80,000 → ₹22,84,615 by the formula, but gratuity under the Act is capped at ₹20 lakh, which is also the tax-free limit.
Related calculators
- Notice period calculator – plan your exit
- CTC to in-hand – how gratuity appears in CTC
- PPF calculator – invest your payout
FAQs
Is gratuity calculated on CTC or basic?
On last drawn basic salary plus dearness allowance – not on CTC or gross salary. Under the labour codes, “wages” must be at least 50% of total pay, which increases the base for many employees.
Do I get gratuity if I am laid off before 5 years?
Permanent employees generally need 5 years of continuous service unless the exit is due to death or disablement. Fixed-term employees qualify after 1 year.
Is 4 years and 8 months enough for gratuity?
Some court rulings have counted 4 years and 240 working days as 5 years of continuous service, but employers apply this differently. Check your company policy.
When must gratuity be paid?
Within 30 days of it becoming payable. Delays attract simple interest.
Does gratuity appear in my CTC?
Often, yes, as 4.81% of basic. See how it affects your monthly pay with the CTC to in-hand salary calculator.