Calculator · Payment of Gratuity Act
Gratuity Calculator
Calculate gratuity under §4 of the Payment of Gratuity Act 1972. Formula: (last drawn basic × 15 × years of service) / 26. Tax-free up to ₹20 lakh under §10(10) of the Income-tax Act.
Gratuity payable
₹1,61,538
Formula · Payment of Gratuity Act §4
(₹40,000 × 15 × 7) / 26 = ₹1,61,538
About the calculation
Formula: (last drawn monthly basic × 15 × years of service) / 26. The “26” treats the month as 26 working days. The “15” is the statutory days-of-pay per year of service.
Years rounding: 6+ months in the final year counts as a full year (e.g., 7 years 7 months = 8 years).
Eligibility: 5 years of continuous service minimum. Exception: death or disablement at any tenure.
Tax-free ceiling: Up to ₹20 lakh is exempt from income tax under §10(10) of the Income-tax Act. Amounts above ₹20 lakh are taxable as ‘income from other sources’.
Employer eligibility: The Act applies to any establishment with 10+ employees. Most Indian SMEs fall under it.
Frequently asked
About the Payment of Gratuity Act.
Who is eligible for gratuity in India?
Employees with 5 years or more of continuous service in an establishment with 10+ employees, under the Payment of Gratuity Act 1972. Exception: death or disablement during service makes gratuity payable at any tenure.
How is the 15/26 fraction in the gratuity formula derived?
The Act treats a working month as 26 days (excluding 4 weekly offs in a 30-day month). The 15 represents the statutory 15 days of last-drawn wages per year of service. So gratuity = (monthly basic × 15) / 26 per year, then multiplied by total years of service.
What if my final year of service is less than 12 months?
Six months or more in the final year counts as a full year. Less than six months is ignored. So 7 years 7 months rounds up to 8 years; 7 years 5 months rounds down to 7 years.
Is gratuity tax-free in India?
Up to ₹20 lakh is exempt from income tax under §10(10) of the Income-tax Act. Amounts above ₹20 lakh are taxable as income. The ₹20 lakh ceiling was raised from ₹10 lakh in 2018 and is the current figure as of FY 2025-26.
Does gratuity apply to contract workers?
Yes, if they meet the 5-year continuous service requirement and the employer is covered by the Act (10+ employees). Casual or daily-wage workers may be excluded depending on contract terms — consult your HR or legal team for specifics.
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