How many years are needed to get gratuity?

You generally need five years of continuous service to be eligible, on retirement or resignation. The five-year condition is waived if service ends due to death or disablement.

Is gratuity tax-free?

For private employees, gratuity is exempt up to the least of the actual gratuity received, the formula amount, or ₹20 lakh. Amounts above that are taxable. Gratuity received by government employees is fully exempt.

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How Is Gratuity Calculated in India?

Q: How is gratuity calculated in India?

For employees covered by the Payment of Gratuity Act, gratuity = last drawn (basic + DA) × 15/26 × years of service. The 15/26 represents 15 days of wages for each completed year, based on a 26-day month. A period beyond six months in the final year counts as a full year.

By Paarth · Published 19 July 2026 · Updated 19 July 2026

Gratuity is a lump sum your employer pays you for long service. For employees covered by the Payment of Gratuity Act, the formula is (last drawn basic + DA) × 15/26 × years of service — that is, 15 days of wages for every completed year, counting a month as 26 working days. You're generally eligible after five years of continuous service, and the amount is tax-free up to ₹20 lakh for private employees. This guide breaks down each part of the formula with a worked example.

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The formula, decoded

Three inputs drive the calculation:

Last drawn basic + DA — your final monthly basic salary plus dearness allowance. Other allowances like HRA are not included.
15/26 — the Act grants 15 days of wages per completed year, and a working month is treated as 26 days. So each year of service earns you 15/26 of a month's basic+DA.
Years of service — completed years. If you served more than six months beyond your last full year, it rounds up to the next year; six months or less is ignored.

A worked example

Suppose your final basic + DA is ₹50,000 and you've completed 10 years. Your gratuity is ₹50,000 × 15 ÷ 26 × 10 = ₹2,88,462. If instead you had served 10 years and 7 months, the service rounds up to 11 years, and the gratuity rises to about ₹3,17,308. That single rounding step — service beyond six months counting as a full year — can be worth tens of thousands of rupees.

Try your own numbersSee the amount and how the ₹20 lakh cap appliesCalculate my gratuity →

Eligibility and when it's paid

Gratuity becomes payable on retirement, or on resignation after completing five years of continuous service. The five-year rule is waived if employment ends because of death or disablement, in which case the amount goes to you or your nominee regardless of tenure. Employers must pay gratuity within 30 days of it becoming due.

How gratuity is taxed

For private-sector employees covered by the Act, gratuity is exempt up to the least of three figures: the actual gratuity received, the amount from the 15/26 formula, or the ₹20 lakh ceiling. Anything above that is added to your income and taxed. Gratuity received by central and state government employees is fully exempt from tax. If you're not covered by the Act, a slightly different half-month (15/30) basis may apply — but the widely used calculation is 15/26.

Frequently asked questions

Does HRA count in the gratuity formula?

No. Only basic salary and dearness allowance are used — HRA and other allowances are excluded.

What if I leave before five years?

You generally aren't eligible for gratuity before five years of continuous service, except where service ends due to death or disablement, when the condition is waived.

Is the ₹20 lakh cap per job or lifetime?

The ₹20 lakh tax-exemption ceiling applies on an aggregate, lifetime basis across employers, not afresh for each job.

Paarth builds the free calculators on PropertiesOnline.in and has been writing about money and everyday tools in India for over 15 years. These guides are practical and honest, not legal or tax advice — check your specific case with your employer or a professional.