Is gratuity taxable in India?

For government employees, gratuity is fully exempt from income tax. For private employees covered under the Gratuity Act, the tax-free amount is the least of: actual gratuity received, ₹20 lakh, or the amount calculated using the 15/26 formula. Any amount exceeding this is taxable at your income slab rate. The ₹20 lakh limit is a lifetime cap across all employers.

What is the 15/26 rule in gratuity?

The 15/26 rule means: 15 days of salary for each completed year of service, calculated based on 26 working days per month (excluding Sundays). The formula is: (Basic + DA) ÷ 26 × 15 × Years of Service. Using 26 instead of 30 results in a slightly higher gratuity amount.

Is DA included in gratuity calculation?

Yes, Dearness Allowance (DA) is included in the gratuity calculation. The salary base for gratuity is Basic Salary + DA only. Other components like HRA, conveyance allowance, special allowance, bonus, overtime, and LTA are explicitly excluded. If you receive commission based on a fixed percentage of turnover, that is also included in the salary for gratuity purposes.

How are months rounded in gratuity calculation?

If the remaining months in the last year of employment are 6 or more, the tenure is rounded up to the next full year. If less than 6 months, it is rounded down. For example, 7 years and 8 months is counted as 8 years, while 7 years and 3 months is counted as 7 years. This rounding can significantly impact the final gratuity amount.

Gratuity Calculator India 2026

Calculate your gratuity amount instantly using the official 15/26 formula under the Payment of Gratuity Act 1972. This free gratuity calculator shows your tax-free gratuity under Section 10(10), taxable portion, and how your gratuity grows with each year of service. Updated for the new Labour Code 2026.

Planning your full retirement? Use our Retirement Planning Calculator →

Enter Your Details

Employee Type

Determines formula & tax cap

Monthly Basic Salary

₹

Monthly Dearness Allowance (DA)

₹

Usually 0 for private; applicable for govt

Years of Service

yrs

Completed full years

Remaining Months

6+ months rounds up

Previous Gratuity Received

₹

Lifetime ₹20L cap deduction

Exit Reason

Death = fully tax-free, no 5yr rule

Your Gratuity Amount

₹0

Using 15/26 formula under Payment of Gratuity Act 1972

Tax-Free Amount

₹0

Taxable Amount

₹0

Effective Years

Tip: Each additional year of service increases your gratuity by approximately ₹0. Plan your exit timing wisely.

Plan Your Retirement → Optimize Your Tax →

Disclaimer: This calculator provides estimates based on the Payment of Gratuity Act 1972 and current tax rules under Section 10(10) of the Income Tax Act. Actual gratuity may vary based on employer policies, specific service conditions, and applicable state rules. Tax laws are subject to change. Consult a qualified Chartered Accountant for tax filing.

Gratuity Calculator Example - Step by Step

Let us walk through a real gratuity calculation example so you can verify the math yourself. You can also run these numbers in the gratuity calculator above. To understand your complete salary structure, use the Salary Breakup Calculator.

Example: Rajesh, Private Sector (Covered under Gratuity Act)

Rajesh has worked at an IT company for 12 years and 8 months. His last drawn basic salary is ₹75,000 and DA is ₹0 (typical for private sector).

                        Step 1: Apply the rounding rule. 12 years 8 months → 13 years (8 months ≥ 6, so round up).

                        Step 2: Apply the formula. Gratuity = ₹75,000 × 15 ÷ 26 × 13 = ₹5,62,500

                        Step 3: Tax check. ₹5,62,500 is below the ₹20 lakh cap. Formula amount (₹5,62,500) = actual amount. Entire gratuity is tax-free.

                        What if he left 2 months earlier? At 12 years 6 months, it still rounds to 13 years - same result. But at 12 years 5 months, it rounds to 12 years = ₹5,19,231. Leaving just 1 month too early costs him ₹43,269.

Example: Priya, Government Employee

Priya is a central government employee retiring after 30 years. Her basic pay is ₹56,100 (Level 10) and DA is ₹30,294 (54% DA).

                        Gratuity = (₹56,100 + ₹30,294) × 15 ÷ 26 × 30 = ₹14,95,038

                        Government employee → fully exempt from income tax up to ₹25 lakh. Entire amount is tax-free.

5 Common Gratuity Calculation Mistakes Indians Make

These mistakes can cost you lakhs. Before using any gratuity calculator online, understand how gratuity calculation in India actually works to avoid these pitfalls.

Calculating on CTC instead of Basic + DA

Your CTC includes HRA, special allowance, bonuses, and employer PF contribution. Gratuity uses only Basic + DA. If your CTC is ₹15 lakh but basic is ₹50,000/month, your gratuity base is ₹50,000 - not ₹1,25,000. Check your breakdown with the Salary Breakup Calculator.

Using 30 instead of 26 in the formula

If your employer is covered under the Gratuity Act (10+ employees), the divisor is 26, not 30. Using 30 gives you 15.4% less gratuity. On a ₹50,000 basic with 15 years of service, this difference is ₹57,692.

Ignoring the year rounding rule

Resigning at 4 years 11 months rounds to 5 years, but 4 years 5 months rounds to just 4 years. One month of waiting could add an entire year to your gratuity calculation. Time your exit strategically.

Forgetting the ₹20 lakh lifetime cap

The tax exemption limit is not per-employer - it is a lifetime cap across all jobs. If you received ₹8 lakh gratuity from your first employer, only ₹12 lakh remains tax-free for all future employers combined.

Thinking gratuity is deducted from salary

Gratuity is 100% employer cost. It is never deducted from your payslip. The employer provisions approximately 4.81% of your basic salary per month towards gratuity liability. It does not reduce your take-home pay.

When to Resign for Maximum Gratuity - Timing Strategy

Your resignation timing can make a difference of lakhs in your gratuity payout. Use this gratuity calculator with different month values to see the exact impact. Here is a data-driven approach:

The 6-month rule is your biggest lever

If you have worked 7 years and 5 months, your effective tenure is 7 years. Wait just one more month (to 7 years 6 months), and your effective tenure becomes 8 years. On a ₹60,000 basic, this one month of waiting adds ₹34,615 to your gratuity.

Tenure	Effective Years	Gratuity (₹60K basic)	vs Previous
4 yrs 5 mo	4	₹1,38,462	-
4 yrs 6 mo	5	₹1,73,077	+₹34,615
9 yrs 5 mo	9	₹3,11,538	-
9 yrs 6 mo	10	₹3,46,154	+₹34,615
14 yrs 5 mo	14	₹4,84,615	-
14 yrs 6 mo	15	₹5,19,231	+₹34,615

The 5-year cliff

If you are at 4 years and 6 months, you are 6 months away from becoming eligible for gratuity at all. Leaving before 5 years (effective) means ₹0 gratuity. This is the single most expensive resignation mistake. If you are thinking about a job switch, use our Salary Hike Calculator to see if the new offer compensates for the gratuity loss.

                        Pro tip: Check your exact joining date from your appointment letter. Count from that date, not from what HR tells you verbally. Many employees miscalculate by a few months and lose an entire year of gratuity.
                    

Gratuity Amount Reference Table - By Salary and Years

Quick lookup table using the 15/26 formula (Gratuity Act). No other gratuity calculator in India publishes this data. For the exact amount, use the calculator above. To determine your basic salary from CTC, use the Salary Breakup Calculator.

Basic + DA	5 Years	10 Years	15 Years	20 Years	25 Years
₹25,000	₹72,115	₹1,44,231	₹2,16,346	₹2,88,462	₹3,60,577
₹50,000	₹1,44,231	₹2,88,462	₹4,32,692	₹5,76,923	₹7,21,154
₹75,000	₹2,16,346	₹4,32,692	₹6,49,038	₹8,65,385	₹10,81,731
₹1,00,000	₹2,88,462	₹5,76,923	₹8,65,385	₹11,53,846	₹14,42,308
₹1,50,000	₹4,32,692	₹8,65,385	₹12,98,077	₹17,30,769	₹20,00,000*

*Capped at ₹20 lakh under the Payment of Gratuity Act 1972. Employers may pay more as ex-gratia but excess is fully taxable. Government cap is ₹25 lakh.

Gratuity Tax Rules India 2026 - Section 10(10)

Understanding gratuity tax exemption is essential for financial planning. Our gratuity calculator shows the exact tax-free and taxable split. Use the Income Tax Calculator to see how taxable gratuity impacts your total liability.

Government Employees

Fully exempt from income tax up to ₹25 lakh under Section 10(10)(i). Includes central, state, local government employees and PSUs.

Private Employees (Gratuity Act)

Tax-exempt amount = least of: actual gratuity, ₹20 lakh (lifetime cap), or the formula-calculated amount. Excess taxed at slab rate.

Death / Disability

Gratuity on death is fully exempt regardless of amount. No cap applies. Disability cases bypass the 5-year service requirement.

Gratuity vs EPF vs NPS - Retirement Benefits Compared

Feature	Gratuity	EPF	NPS
Payment	Lump sum on exit	Lump sum on exit	60% lump + 40% annuity
Employee deduction	None (employer cost)	12% of Basic + DA	10% of Basic + DA
Min service	5 yrs (1 yr for fixed-term)	No minimum for PF	Till age 60
Tax on maturity	Exempt up to ₹20L/₹25L	Exempt (if 5+ yrs)	60% exempt; annuity taxable
Calculator	This page	EPF Calculator	NPS Calculator

For the full picture, combine all three in the Retirement Planning Calculator. Also read: How Much Retirement Corpus is Enough.

Official Sources & References

Official References

Payment of Gratuity Act, 1972 - Ministry of Labour Income Tax Department - Gratuity Calculator Code on Social Security, 2020 - New Labour Code

Frequently Asked Questions

How is gratuity calculated in India?

For employees covered under the Payment of Gratuity Act 1972 (10+ employees), the formula is: Gratuity = (Basic + DA) × 15 ÷ 26 × Years. Only Basic Salary and DA are included. HRA, bonus, and other allowances are excluded. Use the Salary Breakup Calculator to find your exact basic salary.

What is the maximum gratuity limit in India 2026?

₹20 lakh for private employees, ₹25 lakh for central government employees. This is a lifetime cap across all employers. Excess is taxable at your slab rate.

Is gratuity deducted from salary?

No. Gratuity is 100% employer cost. It is never deducted from your payslip. The employer provisions ~4.81% of basic per month towards gratuity liability.

Can I get gratuity before 5 years?

Under the new Labour Code 2026, fixed-term and contract employees are eligible after 1 year. Additionally, death or disability bypasses the 5-year rule entirely.

Why 26 and not 30 in the formula?

26 = working days per month (excluding Sundays). Using 26 gives a higher daily wage, resulting in ~15.4% more gratuity than dividing by 30. The Gratuity Act mandates 26 for covered employees.

How should I invest my gratuity?

If retiring: consider FD for safety + SWP for tax-efficient income. If mid-career: PPF for tax-free returns or SIP for long-term growth. Run the full numbers in our Retirement Planning Calculator.

Is gratuity on death taxable?

No. Gratuity received on death of an employee is fully exempt from income tax. The ₹20L cap does not apply. Payment goes to the nominee in Form F.

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