Retirement gratuity is a one-time statutory payment made to an employee when they leave service after completing the minimum qualifying period, most commonly on retirement.
In India, it is governed by the Payment of Gratuity Act, 1972, which remains fully in force.
In short
- Eligibility: 5 years of continuous service (with a well-defined exception explained below)
- Who pays: Employer
- How it’s calculated: A fixed statutory formula based on last drawn wages and completed years of service
- Tax status: Exempt up to notified limits, subject to conditions
Everything that follows exists only to help you apply this correctly.
Who is eligible for retirement gratuity
You are eligible for gratuity on retirement if all of the following apply:
- You are covered under the Payment of Gratuity Act
- Applies to factories, mines, oilfields, plantations, ports, railways, and most establishments with 10 or more employees
- You have completed at least 5 years of continuous service
- Your exit is due to:
- Superannuation (retirement), or
- Resignation, or
- Termination not involving moral turpitude
The 4 years 8 months rule (often misunderstood)
If an employee has completed 4 years and 240 days in the fifth year (or 190 days for certain establishments), courts have treated this as deemed completion of 5 years.
This is judicially recognised, not a separate rule written into the Act.
What salary components are used
For gratuity purposes, salary does not mean CTC.
Included
- Basic Pay
- Dearness Allowance (DA), if applicable
Excluded
- HRA
- Bonus
- Incentives
- Allowances (other than DA)
- Employer PF contribution
Your last drawn Basic + DA is used, not an average.
Retirement gratuity calculation formula (confirmed)
Statutory formula
Gratuity = (Last drawn Basic + DA) × 15 × Completed years of service ÷ 26Why 15 and 26?
- 15 days’ wages per completed year
- 26 working days considered in a month
Rounding of service years
- Service above 6 months → rounded up to the next year
- Service 6 months or below → ignored
Example:
- 20 years 7 months → counted as 21 years
- 20 years 6 months → counted as 20 years
Calculate Your Gratuity Amount
Use our gratuity calculator to estimate your payable gratuity based on the latest calculation method and proposed wage definition under the new labour codes.
Open Gratuity CalculatorNote: Final applicability depends on official notification of labour codes.
Retirement gratuity calculator (quick-use table)
You can estimate gratuity instantly using this structure:
| Last Drawn Basic + DA | Completed Years | Estimated Gratuity |
|---|---|---|
| ₹40,000 | 20 | ₹4.62 lakh |
| ₹50,000 | 25 | ₹7.21 lakh |
| ₹70,000 | 30 | ₹12.11 lakh |
(Formula applied: Salary × 15 ÷ 26 × Years)
This mirrors how any gratuity calculator in India or online gratuity calculator works.
Maximum gratuity payable (current position)
- Statutory ceiling: ₹20,00,000
- Applies to most private-sector employees covered under the Act
- Any amount paid above this is:
- At employer’s discretion, and
- Treated separately for tax purposes
There is no minimum salary requirement for gratuity eligibility.
Tax treatment at retirement
For employees covered under the Act:
- Gratuity is tax-exempt up to ₹20 lakh
- Exemption is limited to the least of:
- Actual gratuity received
- ₹20,00,000
- Amount calculated under the statutory formula
Amounts exceeding this may be taxable as per prevailing income tax rules.
Gratuity on death or disability
The 5-year condition does not apply in cases of:
- Death
- Permanent disablement
Gratuity is payable to:
- Nominee, or
- Legal heirs
A death gratuity calculator uses the same wage formula but ignores the minimum service requirement.
Private employees: what usually goes wrong
For private-sector employees in India, gratuity errors typically occur due to:
- Using CTC instead of Basic + DA
- Ignoring rounding of service years
- Assuming gratuity is “company policy” rather than statutory
- Missing eligibility by miscounting the fifth year
- Believing gratuity is optional for employers
A correct gratuity calculator for private employees in India fixes all of the above.
Is gratuity changing under new labour codes?
As of now:
- The Payment of Gratuity Act framework continues
- New Labour Codes have not altered the gratuity formula or eligibility in practice
- Any future changes will apply only after formal notification
Until then, all retirement gratuity calculations follow the rules explained on this page.
Practical checklist before you retire
Before accepting your gratuity amount, verify:
- Last drawn Basic + DA used
- Correct rounding of service years
- Statutory ceiling application
- Tax exemption calculation
- Timely payment (interest applies for delays without valid reason)
Bottom line:
Retirement gratuity is a defined legal entitlement, not a discretionary benefit.
If you know your last drawn wages and completed service, you can calculate it precisely—no assumptions, no negotiation, no ambiguity.