Gratuity Calculator: Your Gratuity After 5, 10 & 20 Years

Quick Answer: Gratuity = (last drawn Basic + Dearness Allowance ÷ 26) × 15 × completed years of service. You become eligible after 5 years of continuous service with the same employer, and up to ₹20 lakh is tax-free under Section 10(10) of the Income Tax Act. The detail below covers the worked examples, the eligibility fine print, tax rules, and the mistakes that cost people lakhs.

What is gratuity, and who pays it

Gratuity is a lump-sum payment your employer makes as recognition of long service. It is not part of your monthly salary and not something you opt into: if your establishment is covered by the Payment of Gratuity Act, 1972 — broadly, any factory, shop, office, plantation or educational institution with 10+ employees — your employer must pay it when you leave, provided you meet the service condition. Once covered, an establishment stays covered even if headcount later falls below 10. Your employer funds it as a provision — roughly 4.81% of Basic + DA per year — which is why gratuity is tied to each employer and not portable like your EPF. Context: the EPF wage ceiling rose from ₹15,000 to ₹25,000 per month in September 2026 (effective 17 September). That concerns PF contributions — it does not affect gratuity, which has no wage ceiling.

The gratuity formula, explained piece by piece

Gratuity = (Last drawn salary ÷ 26) × 15 × completed years of service. Last drawn salary means Basic salary + Dearness Allowance only — not CTC, gross pay, or take-home. HRA, conveyance, special allowances, bonuses, incentives and overtime are excluded. Verify your payslip's Basic + DA line — structures that keep basic low and allowances high legitimately shrink gratuity. 26 is the working days in a month under the Act (four weekly rest days removed) — it converts monthly Basic + DA into a daily wage. 15 is fifteen days' wages per completed year — roughly half a month of Basic + DA (0.577 months) per year served. Completed years of service includes a rounding rule: a final partial year exceeding six months counts as a full year. So 7 years 8 months = 8 years, while 7 years 4 months = 7 years. That rounding alone can be worth tens of thousands of rupees. There is no upper cap on the payment (the ₹20 lakh figure is the tax-exemption ceiling, not a payment ceiling — employers can pay more) and no wage ceiling like EPF. A ₹2 lakh monthly Basic + DA gets gratuity computed on ₹2 lakh.

Worked examples: your gratuity after 5, 10 and 20 years

All figures are illustrative, computed with the 15/26 formula on the stated Basic + DA, rounded to the nearest rupee. Example A — Basic + DA of ₹40,000: After 5 years: ₹1,15,385 / After 10 years: ₹2,30,769 / After 20 years: ₹4,61,538. Example B — Basic + DA of ₹60,000: After 5 years: ₹1,73,077 / After 10 years: ₹3,46,154 / After 20 years: ₹6,92,308. Example C — Basic + DA of ₹1,00,000: After 5 years: ₹2,88,462 / After 10 years: ₹5,76,923 / After 20 years: ₹11,53,846. Do your own estimate: take your monthly Basic + DA, multiply by 15, divide by 26, multiply by your completed years (rounding a final partial year above six months up). That is your indicative gratuity before tax.

Do you qualify? The 5-year rule and the 240-day nuance

The headline rule is simple: you must render at least five years of continuous service with the same employer to be eligible. This applies whether you resign, retire, or are terminated for reasons other than misconduct. The Madras High Court, in Mettur Beardsell Ltd. v. Regional Labour Commissioner, held that under Section 2A an employee who has worked 240 days in the fifth year is deemed to have completed a year of continuous service. In plain terms: 4 years + 240 working days in the fifth year is widely treated as completing five years — about 8 months into the fifth year for six-day-week establishments (190 days for five-day-week ones). This is not applied uniformly by all employers. The five-year rule is waived in two situations: Death: gratuity is payable to the nominee or legal heir regardless of service length. Disablement due to accident or disease: payable regardless of tenure. And the five years must be with one employer — gratuity is employer-specific, not portable. Switching jobs resets the clock.

Tax rules: the ₹20 lakh exemption

Under Section 10(10) of the Income Tax Act, gratuity is exempt up to ₹20 lakh — raised from ₹10 lakh effective 29 March 2018. For employees covered by the Act, the exempt amount is the least of: the actual gratuity received, ₹20 lakh, or the 15/26 formula amount. It is a lifetime limit across all employers, not per job. It applies under both the old and the new tax regime. Amounts above ₹20 lakh are taxed as salary in the year received. Government employees get gratuity fully exempt with no ceiling.

How to claim it: nomination and timelines

Nominate after one year of service; keep it updated after marriage or family changes. On exit, apply in Form I within 30 days of the gratuity becoming payable. The employer must pay within 30 days of your application; beyond that, it owes simple interest at the RBI-prescribed rate.

Common mistakes that quietly cost people money

Using CTC or gross salary as the base — only Basic + DA counts. Resigning weeks before the five-year mark — timing matters. Forgetting the 6-month rounding. Assuming gratuity transfers with you — it does not. Assuming the ₹20 lakh exemption resets per job — it is a lifetime limit. No nomination on file.

This article is for educational purposes only and is not financial advice. Please consult a SEBI-registered investment adviser for personalized guidance. Investments are subject to market risk.