Your gratuity payout, and how much of it is actually tax-free.

How is gratuity calculated in India?

For employees covered under the Payment of Gratuity Act, 1972: Gratuity = (last drawn Basic + DA) × 15/26 × completed years of service, where 26 is the assumed working days in a month and 15 is half a month's wage per year of service. If you've worked 6 months or more in your final year, it rounds up to the next full year — a 12 year 7 month tenure counts as 13 years, while 12 years 4 months stays at 12. Employees not covered under the Act typically use 15/30 (a full calendar month) instead of 15/26, which produces a somewhat lower figure for the same tenure.

Is gratuity taxable in India, and what's the exemption limit?

Government employees' gratuity is fully tax-exempt with no upper limit. For private-sector employees, the exempt amount is the minimum of three figures: the actual gratuity received, the statutory formula amount, and ₹20,00,000. That ₹20 lakh cap was raised from ₹10 lakh in 2018 and hasn't changed since — and it's a lifetime limit across every employer you work for, not a fresh allowance per job. Whatever exceeds that cap gets added to your taxable salary income for the year and taxed at your normal slab rate.

Do I need to complete 5 years to be eligible?

Yes — under the Act, 5 years of continuous service is normally required before gratuity becomes payable at all, except in cases of death or disablement, where that requirement is waived entirely. This calculator shows what the formula would produce at any tenure you enter so you can see the trajectory, but actual eligibility is a separate legal question worth confirming with HR if you're near the 5-year mark.

What's the difference between "covered" and "not covered" under the Gratuity Act?

Most organizations with 10 or more employees are covered under the Payment of Gratuity Act, which uses the 15/26 formula and comes with stronger statutory protection. Employees at smaller or exempt establishments may still get gratuity through their employer's own policy, typically calculated on a 15/30 basis instead — check your appointment letter or HR policy if you're unsure which applies to you.

Worked example: a private-sector employee covered under the Act, last drawn Basic + DA of ₹80,000/month, with 12 years and 7 months of service (rounds up to 13 completed years): Gratuity = 80,000 × 15/26 × 13 ≈ ₹6,00,000 — entirely under the ₹20 lakh cap, so the full amount is tax-exempt. The same tenure for an employee not covered under the Act, using 15/30, works out to ₹5,20,000 instead.