Payment of Gratuity Act 1972 • ₹20 Lakh Tax Free Limit

Gratuity Calculator India

Estimate your statutory gratuity entitlement for 5+ years of continuous service under the Payment of Gratuity Act, 1972. Incorporates the 15/26 working day formula and Section 10(10) tax-free exemption checks.

15/26 Statutory Formula•6-Month Rounding Rule•₹20 Lakhs Tax-Free Exemption•100% Free & Private

Employment & Wage Details

15/26 Formula

Statutory Establishment Coverage

Most organized Indian companies with 10+ employees are legally covered under the Act.

Last Drawn Monthly Basic Salary (+ DA)

₹

₹15,000₹75,000 / month₹3 Lakhs

Completed Years of Service

Years

Additional Months of Service (0 - 11)

Months

✓ Exceeds 6 months: Automatically rounded UP to the next full year under statutory rules.

Estimated Gratuity Entitlement

₹3,89,423

9 Effective Yrs

Tax-Exempt (Sec 10(10)):

₹3,89,423

Taxable Gratuity:

₹0

Calculated Formula:(15 × ₹75,000 × 9) ÷ 26

Statutory Tax-Free Ceiling:₹20,00,000 (₹20 Lakhs)

Eligible for statutory gratuity (completed 5+ continuous years of service).

Understanding Gratuity under the Payment of Gratuity Act, 1972

Statutory service tenure rules, the 15/26 working days formula, and tax exemptions.

The 15/26 Statutory Gratuity Formula

For organizations with 10 or more employees covered under the Payment of Gratuity Act, gratuity is computed using 15 days of wages per completed year of service, where a month is treated as 26 working days:

Gratuity = (15 × Last Basic + DA × Tenure) ÷ 26

Where:
• Last Basic + DA = Monthly Basic Salary + Dearness Allowance at time of leaving
• Tenure = Completed years of service (with >6 months rounded up to next year)
• 26 = Number of monthly working days (excluding 4 Sundays)

Worked Example: 7 Years 8 Months Service

An employee with last drawn monthly Basic + DA of ₹80,000 leaving after 7 years and 8 months:

Actual Tenure:7 Years 8 Months

Effective Tenure (Rounded):8 Years (>6 months rule)

Calculation:(15 × ₹80,000 × 8) ÷ 26

Statutory Gratuity Payout:₹3,69,231 (100% Tax-Free)

Statutory Eligibility & Exemption Limits

5-Year Continuous Service Rule:

An employee must complete at least 5 years of continuous service with an establishment to qualify for gratuity. The only statutory exceptions are permanent total disablement or death, where gratuity is paid regardless of tenure.

Section 10(10) ₹20 Lakhs Exemption:

Under the Income Tax Act, the lifetime tax-free gratuity exemption ceiling for non-government private employees covered under the Act is ₹20,00,000. Any gratuity received beyond this limit is added to taxable income.

Frequently Asked Questions about Gratuity

Statutory employee benefits and retirement compensation rules.

When does an employee become eligible for Gratuity in India?

Under Section 4(1) of the Payment of Gratuity Act, 1972, an employee is eligible for gratuity upon resignation, retirement, or termination after completing at least 5 years of continuous service with the organization. This 5-year requirement is waived only in cases of death or disablement.

Why is 26 used as the denominator in the gratuity formula?

The number 26 represents the total working days in a calendar month after excluding 4 Sundays. The statutory formula pays 15 working days’ wages per completed year of service, hence (15 ÷ 26).

How are extra months treated in gratuity calculations?

For organizations covered under the Act, if the remaining service period exceeds 6 months (i.e., 7 months or more), it is rounded up to the next full year. For example, 5 years and 7 months is counted as 6 years. If it is 6 months or less, it is rounded down to 5 years.

Is gratuity completely tax-free in India?

For private sector employees covered under the Payment of Gratuity Act, gratuity received is 100% tax-free up to the statutory limit of ₹20,00,000 (₹20 Lakhs) under Section 10(10). Any amount exceeding ₹20 Lakhs is taxable at the employee’s regular slab rate. For government employees, gratuity is fully tax-exempt without limit.

Suite Directory

100% free, privacy-first calculators built for Indian taxpayers, salaried professionals, and investors.

Live Tool

Payroll & Tax