Quick answer
Gratuity under the Payment of Gratuity Act = 15 × last drawn (basic + DA) × years of service ÷ 26. With ₹60,000 basic + DA and 8 years 7 months of service (rounded to 9 years), gratuity is ₹3,11,538. You normally need 5 years of continuous service. Up to ₹20 lakh is tax-free for private-sector employees.
Key takeaways
- Service of more than 6 months in the final year counts as a full year for covered employers.
- Employers not covered by the Act use 15/30 and count only completed years.
- Gratuity is paid by the employer. It is not deducted from your salary, though it is often shown in CTC.
Gratuity formula
Gratuity = 15 × Last drawn salary × Years of service ÷ 26- Salary = basic + dearness allowance
- 26 = working days in a month (as per the Act)
- Use ÷ 30 if the employer is not covered by the Act
Frequently asked questions
Is gratuity paid after 4 years 6 months?
The Act requires 5 years of continuous service. Some court rulings have counted 4 years and 240 days as 5 years, but many employers follow the plain 5-year rule. The 5-year condition does not apply on death or disablement.
How much gratuity is tax-free?
For private-sector employees, the least of: actual gratuity, ₹20 lakh, or 15 days’ salary for each completed year. Government employees get a full exemption.
Did the new labour codes change gratuity?
Yes. The four labour codes took effect on 21 November 2025. Under the Code on Social Security, 2020, fixed-term employees get gratuity after 1 year of service instead of 5. "Wages" must also be at least 50% of total pay, which raises the salary base for gratuity for many people. The 15/26 formula is unchanged.
Sources & methodology
Formulas follow the standard methods used by Indian banks, fund houses and government schemes. Rates and tax rules were checked against official sources on 1 October 2026. Read our methodology.
This calculator gives an estimate for planning purposes. Actual returns, tax and eligibility depend on your situation and on product terms. It is not financial advice.