Gratuity Calculator

What is Gratuity?

Gratuity is a lump sum payment your employer makes to thank you for your years of service. It is a statutory benefit under the Payment of Gratuity Act 1972, which covers factories, mines, shops and establishments employing 10 or more people. The whole amount is funded by the employer, nothing comes out of your monthly take home.

Gratuity Formula (for covered employees)

Gratuity = (15 x Last Drawn Monthly Salary x Years of Service) / 26

Last drawn salary here means Basic plus Dearness Allowance (DA). It does not include HRA, bonus, overtime or other allowances. The figure of 15 stands for 15 days of wages for every completed year of service.

Why 26 and not 30?

Under the Act the monthly salary is divided by 26 to arrive at the daily wage, because 26 is taken as the number of working days in a month (leaving aside the four Sundays). So the daily wage is monthly salary divided by 26, and you get 15 days of that daily wage for each year served. This is why the calculation looks a little different from a simple monthly figure.

The 5 Year Eligibility Rule

• You need to complete 5 years of continuous service with the same employer to claim gratuity.
• The 5 year condition is relaxed only in case of death or permanent disablement, where it is paid to you or your nominee.
• Gratuity is payable on resignation too, not just retirement, as long as the 5 year mark is crossed.

The 6 Month Rounding Rule

The Act rounds off the last year of service based on the number of months worked. If in your final year you have served more than 6 months, it is rounded up to a full year. If it is 6 months or less, that part year is ignored. For example, 10 years and 7 months counts as 11 years, while 10 years and 4 months counts as 10 years. This calculator keeps the slider in whole years to stay simple, so do round your own service using this rule before entering the value.

Tax on Gratuity

For non government employees covered under the Act, gratuity is tax exempt up to a lifetime limit of ₹20,00,000. This ₹20 lakh cap applies across your entire career and across all employers put together, not per job. Anything received beyond ₹20 lakh is added to your income and taxed as per your slab. Government employees enjoy full exemption with no cap.

Worked Example

Suppose your last drawn salary (Basic plus DA) is ₹50,000 and you have put in 10 years of service. Plugging into the formula: (15 x 50000 x 10) / 26 = 75,00,000 / 26 = ₹2,88,462. Since this is well below the ₹20 lakh limit, the entire ₹2,88,462 is tax exempt in your hands.