Enter your last drawn basic + DA, years of service, and employee type to see the statutory gratuity amount and its tax-exempt vs. taxable split under the ₹20 lakh limit.
The rounding rule turns on a single month. At 12 years 5 months, completed years stay at 12 and the default ₹80,000 basic gives ₹5,53,846.15. One month later, at 12 years 6 months, completed years jump to 13 and the same basic gives ₹6,00,000.00 — this page's own worked example. That single extra month of tenure is worth an entire additional year's worth of gratuity, purely from crossing the rounding threshold.
This page's own default lands at ₹6,00,000 — comfortably under the cap, so it doesn't show what capping looks like. A longer career tells a different story: a ₹2,00,000 basic salary over 30 years works out to ₹34,61,538.46 by the same formula, but a private-sector employee can only receive ₹20,00,000 of that tax-free — the remaining ₹14,61,538.46 gets added to taxable salary income for the year. The formula does not stop calculating at the cap; only the tax exemption does.
A government employee with the exact same ₹34,61,538.46 result owes no tax on any of it — the cap this page applies to private-sector employees simply does not exist for government service. Confirming which category actually applies is worth doing before assuming either outcome; the exemption rules move a genuinely large number depending on which side of that line an employee sits on. For the broader question of how gratuity fits into total compensation from a salary structure with HRA and other allowances, see the HRA Calculator and the Salary Calculator for converting between pay periods; the Retirement Calculator is where a lump sum like this actually fits into a longer-term plan rather than standing on its own.
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.
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.
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.
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.
Gratuity shows up in your offer letter as roughly 4.81% of basic — CTC vs in-hand salary explains why you may never collect it, and EPF vs PPF vs NPS covers the rest. Building your broader retirement picture? See the EPF Calculator and PPF Calculator, or check how much of your HRA is tax-free. India-specific money rules are worked through end to end in our book, Paisa Playbook.