Gratuity Calculator India 2026 — Complete Guide to Payment of Gratuity Act 1972
Gratuity is a statutory monetary benefit paid by an employer to an employee in recognition of long and meritorious service. In India, gratuity is governed by the Payment of Gratuity Act, 1972, which mandates gratuity payment to employees who have rendered continuous service of five or more years. This guide explains everything you need to know about eligibility, the gratuity calculation formula, tax treatment under Section 10(10), and the recently enhanced ₹20 lakh tax-free ceiling.
What Is Gratuity and Who Is Eligible?
Gratuity is payable to an employee on separation from service — be it resignation, retirement, retrenchment, layoff, or death. The Payment of Gratuity Act applies to every factory, mine, oilfield, plantation, port, and railway establishment, as well as every shop or establishment employing 10 or more persons. Once an establishment comes under the Act, it continues to be covered even if the number of employees subsequently falls below 10.
To be eligible for gratuity, an employee must have completed five years of continuous service with the same employer. The one exception: in the case of death or permanent disablement due to accident or disease, gratuity is paid regardless of years of service — even if the employee worked for just one year.
Gratuity Calculation Formula — Covered vs. Not Covered
The formula differs depending on whether the employee is covered under the Gratuity Act:
Rounding Rule: Fractions of a year greater than 6 months are rounded up to the next complete year. So 7 years and 8 months = 8 years. But 7 years and 4 months = 7 years.
Maximum Gratuity Payable: As of the latest government notification, the maximum gratuity payable under the Act is ₹20 lakh (₹20,00,000). Any amount calculated in excess of this ceiling may still be paid by the employer as an ex-gratia, but only ₹20L is protected under the statute.
Section 10(10) — Tax Exemption on Gratuity
Section 10(10) of the Income Tax Act provides an exemption from income tax on gratuity received. The tax treatment depends on the category of employee:
- Government Employees (Central/State/Local Authority): Gratuity received on retirement or death is fully exempt from income tax — there is no upper ceiling.
- Private Sector Employees Covered under Gratuity Act: Least of the following is exempt: (a) actual gratuity received, (b) 15 days' salary for each year of service, (c) ₹20,00,000. Any amount above ₹20L is taxable.
- Private Sector Employees NOT Covered under Gratuity Act: Exempt amount is least of: (a) half a month's salary for each year of completed service, (b) actual gratuity received, (c) ₹20,00,000.
Note: If you receive gratuity from more than one employer during your lifetime, the aggregate exemption across all gratuities is capped at ₹20 lakh. Previous exemptions claimed must be deducted from the remaining ceiling.
Resign Date Optimizer — Maximise Your Gratuity
Because gratuity is calculated on whole years (with the 6-month rounding rule), your resignation timing can materially affect your payout. For example, if you are at 9 years and 5 months, waiting just 2 more months makes it 9 years 7 months — which rounds to 10 years and adds a full year of gratuity to your entitlement. On a Basic + DA of ₹60,000, that additional year is worth ₹60,000 × 15/26 = ₹34,615. This is why the Resign Date Optimizer in our calculator shows milestone targets and the incremental gain from reaching each one.
Form F — Gratuity Nomination
Every employee covered under the Payment of Gratuity Act must submit Form F (Nomination Form) to their employer. Key points:
- Submit within 30 days of completing 1 year of service, or within 30 days of marriage (whichever happens first for new employees).
- If you have a family (spouse, children, parents), you can only nominate family members — not friends or unrelated persons.
- If you do not have a family, you may nominate any person, but must re-nominate a family member within 90 days of acquiring one.
- Update your nomination after major life events: marriage, birth of a child, divorce, death of a nominee.
- Failure to submit Form F means the gratuity goes to legal heirs as per succession law, which may cause delays and disputes.
How to Claim Gratuity After Resignation or Retirement
On leaving the organisation, the employee (or their nominee/legal heir in case of death) must file Form I (Application for Gratuity) to the employer. The employer must:
- Acknowledge the application within 15 days.
- Determine the gratuity amount payable within 15 days of the application.
- Pay the gratuity within 30 days of the date it became payable.
- If the employer disputes the claim, they must pay the undisputed portion and refer the dispute to the controlling authority.
Delayed payments attract 10% simple interest per annum from the due date to the date of payment. Employees can file a complaint with the Controlling Authority (usually a designated labour commissioner) if the employer defaults.
Gratuity Under New Labour Codes (Code on Social Security 2020)
The Code on Social Security, 2020 — one of the four consolidated labour codes passed by Parliament — proposes to subsume the Payment of Gratuity Act. Under the new Code, the definition of "wages" for gratuity calculation will change: wages cannot be less than 50% of total remuneration, which may increase the gratuity base for many employees in structurally complex salary packages. Additionally, the Code proposes gratuity entitlement for fixed-term contract employees on a pro-rata basis even if they have not completed 5 years — as long as the fixed term itself was at least 1 year. As of 2026, these provisions have not yet been operationalized (rules pending notification), so the Payment of Gratuity Act 1972 continues to govern.
Frequently Asked Questions
What is the minimum years of service required to be eligible for gratuity?
An employee must have completed a minimum of 5 years of continuous service with the same employer to be eligible for gratuity under the Payment of Gratuity Act 1972. However, in case of death or disablement due to accident or disease, the 5-year rule is waived — the legal heirs or the employee receive gratuity regardless of years of service.
What is the gratuity formula for employees covered under the Gratuity Act?
For employees covered under the Payment of Gratuity Act 1972: Gratuity = (Last drawn Basic + DA) × 15/26 × Number of completed years of service. The denominator 26 represents the number of working days in a month. A fraction of more than 6 months is rounded up to the next full year.
What is the gratuity formula for employees NOT covered under the Gratuity Act?
For employees not covered under the Act (organisations with fewer than 10 employees, or by court agreement): Gratuity = (Last drawn Basic + DA) × 15/30 × Number of completed years of service. Here 30 is used as the number of calendar days in a month. These employees are not legally entitled to gratuity but many employers voluntarily pay it.
What is the maximum gratuity amount tax-free in 2026?
The maximum gratuity exempt from income tax is ₹20 lakh (₹20,00,000) under Section 10(10) of the Income Tax Act. This limit applies to both government and private sector employees covered under the Gratuity Act. Any gratuity received beyond ₹20 lakh is taxable as "Income from Salaries". Government employees' gratuity is fully tax-free without any ceiling.
Does 6 months of service count as a full year for gratuity calculation?
Yes. If an employee has completed a fraction of service that is more than 6 months, it is rounded up to the next complete year for gratuity calculation. For example, 10 years and 7 months = 11 years for gratuity purposes. But if the fraction is 6 months or less, it is ignored. So 10 years and 4 months = 10 years.
Is gratuity paid on basic salary only or on CTC?
Gratuity is calculated on the last drawn Basic Salary + Dearness Allowance (DA) only. It does not include HRA, bonus, commission, overtime, or other allowances. Many employees confuse CTC with the gratuity base — the gratuity amount is generally lower than what employees expect when calculated on full CTC.
Within how many days must an employer pay gratuity after resignation?
Under the Payment of Gratuity Act, an employer must pay gratuity within 30 days from the date it becomes payable (i.e., from the last day of employment). If the employer delays beyond 30 days without reasonable cause, they must pay simple interest at the rate of 10% per annum on the pending amount for the period of delay.
What is Form F in gratuity and why should I submit it?
Form F is the Nomination Form under the Payment of Gratuity Act. Every employee must nominate one or more family members who will receive the gratuity in case of the employee's death before retirement. Form F is submitted to the employer within 30 days of joining or after 1 year of service. If an employee has a family, they can only nominate family members. Updating nominations after major life events (marriage, birth of child) is strongly recommended.
Can gratuity be forfeited by the employer?
Yes, under Section 4(6) of the Payment of Gratuity Act, an employer can forfeit gratuity (partially or fully) if the employee has been terminated for: (a) wilful omission or negligence causing financial loss to the employer — to the extent of the loss, or (b) riotous, disorderly, or violent conduct on the employer's premises, or (c) an offence involving moral turpitude committed during employment. Normal resignation or redundancy does not attract forfeiture.
Is gratuity applicable to contract workers, part-time employees, and trainees?
Gratuity under the Act applies to employees in the legal sense — those on the employer's payroll for wages. Contract workers on third-party payrolls are generally not eligible unless courts determine them to be employees of the principal employer. Part-time workers with continuous service may be eligible based on court interpretations. Apprentices and trainees are generally excluded unless they later become regular employees and their apprenticeship period is counted.