Gratuity Calculator Tax Year 2026–27

Two different things are called gratuity

This is the single most common confusion on an Indian offer letter, and it costs people real money when they compare packages.

The CTC line item is an annual provision, usually 4.81% of Basic, that your employer books against a future payment. It inflates your CTC. You never see it in a payslip, and if you leave before qualifying you never see it at all. That 4.81% is a convention employers have settled on, not a rate the law sets.

The entitlement is what you are actually paid when you leave, after enough continuous service. It is calculated on your last drawn wages, not on what was provisioned along the way.

The two are unrelated in size. Someone who leaves after four years has had a gratuity provision counted against their CTC every year and receives nothing.

What "wages" means here, and why it is not just Basic + DA

The formula is last drawn monthly wages, times 15/26, times your counted service. The 15/26 is fifteen days' pay for each year, treating a month as twenty-six working days. That part is straightforward.

The wage figure is not. Since the revised definition of wages took effect on 21 November 2025, wages means basic pay, dearness allowance and retaining allowance, and where the components excluded from that definition come to more than half of your total pay, the excess is added back into wages.

So on a package where Basic is 30% of monthly pay, statutory wages are not 30%. Enough is added back to bring wages to half of remuneration, and gratuity is calculated on that higher figure. Anyone still quoting "Basic + DA" for a low-Basic structure is understating the entitlement.

Use the second wage mode above and the calculator will do the add-back from your own numbers.

Fixed-term employment is not contract labour

These get used interchangeably and they are different things with different rules.

A directly employed fixed-term employee is engaged by the employer on a contract for a fixed period. They qualify for gratuity after one year of service under that contract, and it is paid pro rata, so eighteen months of service counts as eighteen months rather than being rounded down to one year.

Contract labour supplied through a contractor is a different arrangement. There the contractor is the employer for gratuity purposes, and the ordinary continuous-service requirement applies.

If you are unsure which you are, the question is who issued your appointment letter and who pays you.

Two ceilings that are not the same ceiling

Gratuity is exempt from income tax up to ₹20 lakh across your working life. Above that, the excess is taxable as salary.

That is a tax limit. It is not the same as any maximum the Central Government may notify for the payment itself under the Code, and this calculator does not apply one to your entitlement because we have not obtained a current notification setting it. What you see is the formula result, with the tax position reported separately.

The five-year rule and its limits

A permanent employee normally needs five years of continuous service. This calculator models that ordinary case: resignation, retirement or superannuation.

It is not universal. Where employment ends through death or disablement the qualifying-service requirement is relaxed, and nothing here models that. If you are working out an entitlement in those circumstances, this tool is the wrong place to do it.