Gratuity Calculator
Estimate gratuity payable using the 15/26 formula on last drawn basic + DA.
What this calculator does
Gratuity is the least-discussed part of a job offer, and one of the most underrated. If you complete 5 years with an employer in India, they owe you a gratuity payout under the Payment of Gratuity Act, 1972 — up to ₹20 lakh tax-free (for private sector employees).
The formula is (15 × Last Drawn Basic + DA × Completed Years of Service) / 26. That '26' is because the law considers a month as 26 working days. So if your last basic is ₹80,000 and you've worked 8 years, your gratuity is roughly ₹3.7 lakh. Not life-changing, but not nothing.
Where this calculator becomes powerful is when you're negotiating an offer or deciding whether to stick around for a fifth year. Sometimes waiting 6 more months to cross the 5-year threshold is worth ₹1-2 lakh. Sometimes a big pay bump elsewhere justifies leaving gratuity on the table. Run the numbers before you emotionally commit.
Gratuity = (15 × Last Salary × Years of Service) / 26Variables explained
- Last drawn basic + DA
Only basic salary and dearness allowance count for gratuity — not gross, not CTC.
- Years of service
Completed continuous years with the same employer. 4 years 7+ months usually counts as 5 in most companies (as per Madras HC ruling).
Worked example: 8 years of service, ₹80,000 last basic
Gratuity = (15 × 80,000 × 8) / 26 = 96,00,000 / 26 = ~₹3,69,230.
This is fully tax-free (up to ₹20 lakh lifetime cap).
Same calc for 4 years 6 months: eligibility not met, gratuity = ₹0. Waiting another 6 months = ₹1.85 lakh in your pocket.
Retirement math is really 'how do I not run out of money?' math
Retirement calculators can feel abstract because the numbers are big and the timelines are long. Here's a way to make them concrete: whatever your target corpus is, divide it by 300. That's the rough monthly income it can sustain for 25+ years using a 4% safe-withdrawal rule.
So if the calculator says you need ₹5 crore, that's about ₹1.65 lakh a month in today's money — before inflation adjustments. Ask yourself: is that the life I want?
Play with the 'years to retirement' input. Someone starting at 25 with ₹8,000/month often ends up richer than someone starting at 35 with ₹20,000/month, purely because of the extra 10 years of compounding.
Don't ignore EPF, NPS, PPF, and any employer superannuation. These are already working for you and belong in the same corpus number. A lot of people undercount their existing retirement savings and feel behind when they aren't.
Common mistakes
- ✗Quitting at 4 years 10 months and losing gratuity eligibility.
- ✗Assuming gratuity is paid on CTC, not basic + DA.
- ✗Not claiming gratuity from an old employer after leaving — it doesn't lapse; ask for it.
- ✗Ignoring the ₹20 lakh tax-free cap when negotiating senior-level exits.
Frequently asked questions
Do I have to complete exactly 5 years?+
Legally yes. Practically, if you've completed 4 years and 240+ days in the 5th, most Indian HR departments treat it as 5 years.
Is gratuity taxable?+
Up to ₹20 lakh lifetime — tax-free for private sector. Above ₹20 lakh — taxable at slab rate.
What if the company goes bankrupt?+
Gratuity is a first-charge liability under the Act. Employees are among the first to be paid from remaining assets — though recovery in bankruptcy is often slow.
Does gratuity apply to contract employees?+
Yes — if continuous service is 5+ years with the same principal employer, gratuity applies regardless of contract vs permanent status.
Reminder: this calculator is a learning tool, not personalised advice. For decisions involving your actual money, talk to a SEBI-registered adviser about your specific situation.