Gratuity Calculator

Gratuity rules: everything you need to know

Gratuity is a lump-sum payment your employer owes you for long service. It is not a bonus or discretionary gift — it is a legal entitlement under the Payment of Gratuity Act, 1972. Here is every rule that determines how much you get.

Who is covered

The Act applies to all establishments — factories, mines, shops, offices — with 10 or more employees. Both private and government employees are covered. Apprentices are excluded. If your employer has fewer than 10 employees, gratuity is not mandatory under the Act (though some employers pay it voluntarily).

The 5-year rule

You must have completed 5 continuous years of service with the same employer to be eligible. "Continuous service" includes periods of sickness, accident, leave, and lock-outs — not just calendar years actually worked. The last year is rounded: more than 6 months in the final year counts as a full year, so 4 years 7 months = 5 years (eligible), while 4 years 4 months = 4 years (not eligible). If you resign at exactly 4 years 6 months or less into the 5th year, you receive nothing (with one important exception — see below).

The formula: (Basic + DA × 15 × years) ÷ 26

Gratuity = (Last Drawn Salary × 15 × Years of Service) ÷ 26

• Last Drawn Salary: Basic Pay + Dearness Allowance (DA) only. HRA, bonus, commission, and other allowances are excluded.
• 15: 15 days' wages for every completed year of service.
• 26: Working days in a month (4 Sundays excluded from 30 days).

Example: Basic+DA of ₹60,000/month, 10 years of service:
₹60,000 × 15 × 10 ÷ 26 = ₹3,46,154

The 6-month rounding rule

If your last year of service includes more than 6 months, it is counted as a full year. If 6 months or less, it is ignored. This is not optional — it is mandated by the Act.

• 7 years 8 months → calculated as 8 years
• 7 years 4 months → calculated as 7 years
• 7 years exactly 6 months → calculated as 7 years (6 months does not trigger the round-up)

The 4 years + 240 days rule (Section 2A)

Under Section 2A of the Act (backed by Madras High Court and other judgments), an employee who has worked at least 240 days in the 5th year is deemed to have completed 5 years of continuous service and is entitled to gratuity.

This calculator uses the Payment of Gratuity Act's own 6-month rounding rule as a proxy: if you have 4 completed years and 6 or more months into the 5th year, it marks you as eligible. Strictly speaking, 240 working days is roughly 9–10 months for a 5-day work week, so 6 months is an employee-friendly approximation. If your employer disputes eligibility, the actual count of working days in the 5th year becomes the deciding factor. The Controlling Authority (Labour Commissioner) or a labour court has final say.

Death or disablement: no waiting period

If an employee dies or is permanently disabled in an accident or disease, gratuity is payable immediately regardless of tenure. The 5-year rule is completely waived. Even someone who worked for 3 months is entitled to gratuity in these cases. The amount goes to the registered nominee (Form F). If no nominee is registered, it goes to the legal heirs.

Fixed-term employees: new Labour Code (November 2025)

The Code on Social Security, 2020 (part of the four Labour Codes) reduced the minimum eligibility period for fixed-term and contract employees from 5 years to just 1 year. This change became prospectively effective on 21 November 2025.

If you are on a fixed-term contract (not a permanent employee), you are now entitled to pro-rata gratuity after completing 1 year of service. The calculation formula remains the same.

Tax treatment

The tax rules differ based on who employs you:

• Government employees: Fully exempt from income tax, no upper limit. Covered under Section 10(10)(i) of the Income Tax Act.
• Private sector employees (covered under POGA): The exempt amount is the least of — ₹20 lakh, the actual gratuity received, or the eligible gratuity as per the formula. Covered under Section 10(10)(ii). Any amount above ₹20 lakh is taxed as salary income at your slab rate.
• Death or disablement (any employer): Gratuity received by the employee or nominee is fully exempt from income tax.

The ₹20 lakh limit under the Payment of Gratuity Act was raised from ₹10 lakh in 2018. Central Government employees under the 7th Pay Commission can receive up to ₹25 lakh as retirement gratuity under their service rules (separate from the POGA cap).

When can an employer forfeit gratuity

Forfeiture is allowed only in three situations — and even then, only with a proper domestic inquiry:

• Wilful omission or negligence causing damage or loss to employer property (forfeiture limited to the extent of damage, not the total gratuity).
• Termination due to riotous, disorderly, or violent conduct at the workplace.
• Termination for an offence involving moral turpitude committed during employment.

Resignation, poor performance, not serving a full notice period, or minor disciplinary issues do not allow forfeiture. If your employer refuses to pay gratuity without valid grounds, you can file a complaint before the Controlling Authority under the Act (typically the Labour Commissioner).

How to claim gratuity (Form I)

When you leave, submit Form I to your employer within 30 days of the date gratuity becomes due. Your employer must pay within 30 days of receiving the claim. If delayed, the employer must pay interest at the rate specified by the government. On death, the nominee submits Form J (or Form K, depending on whether a nominee was registered).

Frequently Asked Questions