Gratuity: eligibility, formula and tax treatment
Gratuity is a lump sum an employer pays when you leave after at least five years of continuous service, calculated as 15 days of your last basic for every completed year: last monthly basic multiplied by 15/26 multiplied by years of service. Up to ₹20 lakh is tax free for private sector employees.
FY 2026-27 figures, rules verified 3 Sep 2026. Numbers assume basic at 40% of CTC, employer PF inside CTC and ₹2,400 professional tax unless stated.
Companies provision 4.81% of basic every year to fund it, and many show that provision inside CTC. If you leave before five years you do not receive it, so the CTC figure overstates what you will actually collect.
Fixed-term employees under the Labour Codes vest after one year rather than five. Six months or more in the final year counts as a full year.
The gratuity calculator shows the payout at your basic and tenure and how much of it is taxable.
See the figure for your own salary on the in hand calculator.
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Related terms
- Basic salary — Basic salary is the fixed core of your pay on which provident fund, gratuity and HRA exemption are calculated, typically 40% to 50% of CTC in India.
- EPF — EPF stands for Employees Provident Fund, a retirement account under the EPF Act 1952 into which you contribute 12% of basic and your employer another 12%, of which 8.33% of basic capped at ₹1,250 a month goes to the Employees Pension Scheme.
- CTC — CTC stands for cost to company: the total amount an employer spends on you in a year, including your gross salary, the employer share of provident fund, any gratuity provision, insurance premiums and sometimes the value of perks.