Gratuity Calculator 2026 — PGA Formula + Tax Exemption

For employees covered under the Payment of Gratuity Act 1972 (organisations with 10+ employees): Gratuity = (Last Basic+DA × 15 × Years of Service) ÷ 26. For non-covered employees: Gratuity = (Last Basic+DA × 15 × Years) ÷ 30. The divisor is 26 for covered employees (representing 26 working days per month) and 30 for non-covered (calendar days). Only Basic salary and Dearness Allowance are counted — HRA, bonus, and other allowances are excluded.

Under the Payment of Gratuity Act, an employee must complete at least 5 years of continuous service to be eligible for gratuity. The only exceptions are death or disability — in these cases, gratuity is paid regardless of service duration. Note: for covered employees, if you have completed 4 years and 8 months or more (240 days in the last year), it is rounded up to 5 years and you qualify.

Under Section 10(10) of the Income Tax Act: (1) Government employees: entire gratuity is tax-exempt. (2) Private sector employees covered under PGA: exempt is the minimum of actual gratuity, ₹20 lakh, or the formula amount. (3) Non-covered employees: exempt is the minimum of half-month salary for each year, ₹20 lakh, or actual gratuity. The ₹20 lakh limit was enhanced from ₹10 lakh in the 2023 Budget. Any amount above the exempt limit is added to your income and taxed at your slab rate.

No. Gratuity is calculated only on Basic Salary + Dearness Allowance (DA). All other components — HRA, special allowance, LTA, bonus, incentives, overtime, and commissions — are excluded from the gratuity calculation. Always check your payslip for the Basic + DA component, which is typically lower than your CTC or gross salary.

If you resign before completing 5 years of continuous service, you are generally not entitled to gratuity under the Payment of Gratuity Act. However, some employers voluntarily pay gratuity on a pro-rated basis as part of their HR policy. In case of death or total disability of the employee, gratuity is paid to the nominee/family regardless of how many years of service were completed.

It depends on whether you are a covered employee. For employees covered under the Payment of Gratuity Act, the Supreme Court of India ruled (in Surinder Singh vs Central Govt, 1986) that service of 4 years and 240 days or more in the last year of employment qualifies as 5 years. This means if you worked 240+ days in your final year, your service is rounded up to 5 years. However, if you worked exactly 4 years and 7 months (roughly 210 days in the last year), you likely fall short of the 240-day threshold. For non-covered employees, the rounding rule does not apply — a strict 5-year completion is required unless the employer's policy states otherwise.

The gratuity tax exemption ceiling under Section 10(10) of the Income Tax Act was raised to ₹20 lakh effective from March 29, 2018 (previously ₹10 lakh). This ₹20 lakh limit applies to private sector employees; for government employees, the entire gratuity amount is tax-exempt with no upper cap. Importantly, the ₹20 lakh limit is a lifetime cumulative limit, not per-employer. If you received ₹12 lakh gratuity from your first employer, only ₹8 lakh of gratuity from your next employer can be claimed as exempt. Any amount above the lifetime limit is added to your taxable income for the year.

Under Section 4(6) of the Payment of Gratuity Act, an employer can forfeit gratuity wholly or partially if the employee's services were terminated due to: (1) riotous or violent behaviour, or (2) any act constituting a moral turpitude offence — provided the employee was convicted for such an offence. For example, if an employee is terminated for theft, fraud, or physical assault and is convicted, the employer may forfeit the gratuity. Simple termination for poor performance or layoffs does NOT qualify as grounds for forfeiture. Voluntary resignation after 5 years of service cannot result in forfeiture. If an employer wrongfully denies gratuity, the employee can file a complaint with the Controlling Authority (usually the Labour Commissioner).

If an employee dies during service, gratuity is paid to the nominee (or legal heirs if no nominee is designated) regardless of the years of service completed. The 5-year minimum service requirement is waived in case of death. The calculation formula remains the same: (Last Basic+DA × 15 × Years of Service) ÷ 26 for covered employees. However, years of service is counted even if less than 5. The tax exemption limit of ₹20 lakh also applies to gratuity received by nominees. Employers are required to pay the gratuity within 30 days of it becoming due; failure to do so attracts interest at 10% per annum from the employer.

Gratuity and PF are both retirement benefits but work very differently. PF (EPF) is a monthly contribution from both employee (12% of Basic+DA) and employer (12%), accumulated over your career with interest (currently 8.25%). Gratuity is a one-time lump sum paid by the employer at the end of employment, calculated using a formula based on last drawn salary and years of service. PF has no minimum service requirement for withdrawal, while gratuity requires 5 years (except death/disability). PF corpus is typically much larger than gratuity for long-tenure employees because of continuous monthly contributions and compounding. Both are partially or fully tax-exempt — EPF withdrawn after 5 years is completely tax-free, while gratuity is exempt up to ₹20 lakh.

The eligibility of contract workers depends on their employment relationship. If a worker is directly employed by the organisation (even on a fixed-term contract) and completes 5 years of continuous service, they are entitled to gratuity under the Payment of Gratuity Act. The Code on Social Security 2020 (once notified) explicitly includes fixed-term employees and reduces the gratuity eligibility from 5 years to proportionate basis for fixed-term contracts. Workers hired through third-party contractors are technically employees of the contractor, not the principal employer — the contractor is liable for their gratuity. However, if the principal employer exercises direct supervision and control, they may also be held liable. Gig workers and freelancers are generally not covered under the Act as they are not classified as employees.