Gratuity Calculator (Payment of Gratuity Act, 1972)
Gratuity is a lump-sum statutory terminal benefit provided by employers in India under the Payment of Gratuity Act, 1972. Any employee who completes 5 continuous years of service is legally entitled to gratuity when resigning, retiring, or upon superannuation.
Service & Salary Inputs
15/26 FormulaMost private & public companies with 10+ employees
For 7 years and 7 months of service with last drawn basic salary of ₹ 70,000, you are entitled to ₹ 3,23,077 in statutory gratuity.
You have satisfied the 5-year continuous service tenure mandated by Section 4 of the Payment of Gratuity Act, 1972.
The 15/26 Statutory Gratuity Formula
Section 4(2) of the Payment of Gratuity Act mandates that for every completed year of service, the employer must pay gratuity calculated at the rate of 15 days' wages based on the last drawn rate of basic wages and dearness allowance:
Why 26 working days instead of 30? In the landmark ruling Jeewanlal Ltd. v. Appellate Authority, the Supreme Court of India affirmed that an employee receives wages for 26 working days in a month after excluding 4 weekly holidays (Sundays). Thus, a day's wage is arrived at by dividing the monthly salary by 26, not 30.
The 6-Month Rounding Rule: If an employee has worked for more than 6 months in their final year of service (e.g. 7 years and 7 months), it is rounded up to the nearest whole year (8 years). If less than 6 months, it is rounded down.
Worked Scenarios
Example 1: 7 Years & 7 Months Service with ₹70,000 Basic Pay
Because the additional service (7 months) exceeds 6 months, the law rounds service up to 8 full years: (15 × ₹70,000 × 8) ÷ 26 = ₹3,23,077. Because this is well below ₹20,00,000, it is 100% tax-free.
Example 2: 25 Years Service with ₹1,20,000 Basic Salary
Retiring after 25 years with ₹1,20,000 Basic + DA: (15 × ₹1,20,000 × 25) ÷ 26 = ₹17,30,769, completely tax-exempt under Section 10(10).
Example 3: Leaving Service at 3.5 Years (Under 5-Year Threshold)
Section 4(1) of the Act mandates a minimum of 5 continuous years of service. An employee resigning at 3.5 years is legally ineligible for gratuity from the employer.
Section 10(10) Tax Exemption Rules
Under Section 10(10) of the Indian Income-tax Act, gratuity received by private sector employees is 100% tax-exempt up to a lifetime statutory ceiling of ₹20 Lakh (₹20,00,000). Any gratuity amount paid by an employer exceeding ₹20 Lakh is taxable at the employee's applicable slab rate. For Central and State Government employees, gratuity is 100% tax-free without any upper financial cap.
Frequently Asked Questions
Is gratuity calculated on CTC or Basic Salary?
Statutory gratuity is calculated strictly on your Last Drawn Monthly Basic Salary + Dearness Allowance (DA), NOT on your total Cost to Company (CTC) or gross salary. Special allowances, HRA, and medical allowances are excluded by law.
What is the 4 years 240 days rule?
Multiple High Court and Appellate Tribunal judgments (such as Madras Fertilizers Ltd.) have held that an employee who has worked 240 days in their 5th year of service is deemed to have completed continuous service for that year, thereby qualifying for gratuity even with 4 years and 240 days of employment.
Related Calculators & Next Steps
Hand-curated tools based on your calculation journey:
Calculate the total tax on your terminal compensation package.
See how a higher basic pay elevates your long-term statutory gratuity.
Park your post-resignation gratuity in safe liquid funds.
Read the detailed step-by-step 15/26 mathematical worked manual.
- ›Ministry of Labour and Employment: Payment of Gratuity Act, 1972 (Act No. 39 of 1972)
- ›Income Tax Act 1961: Section 10(10) Gratuity Exemption Notification (₹20 Lakh Limit)
- ›Supreme Court of India Rulings on Continuous Service & 240-day Rule
Disclaimer: This tool provides computational estimates for educational and informational purposes only. It does not constitute personal financial, tax, or legal advice. Consult a certified financial planner or CA for specific advice.