Gratuity Calculator (India)

What is gratuity?

Gratuity is a lump-sum benefit paid by an employer to an employee as a “thank you” for long and continuous service. In India, it is governed by the Payment of Gratuity Act, 1972 for eligible establishments.

It becomes payable when an employee leaves the organisation due to resignation, retirement, superannuation, death, disablement, or termination (other than for misconduct), provided the minimum service conditions are met.

Who is eligible for gratuity?

• The establishment is covered under the Payment of Gratuity Act (generally 10 or more employees).
• The employee has completed at least 5 years of continuous service with the employer.
• The 5-year condition is waived in case of death or disablement due to accident or disease.

Note: Some court judgments have treated 4 years and 240 days as qualifying for gratuity in certain cases, but this is not explicitly written in the Act. Always check with your HR or a legal professional.

Gratuity formula under the Act

For employees covered under the Payment of Gratuity Act, 1972, the standard formula is:

• Last drawn basic salary + DA: Monthly basic pay plus dearness allowance.
• 15: 15 days’ wages for every completed year of service.
• 26: Assumed number of working days in a month.
• Completed years of service: Years rounded as per rules (see below).

Rounding of service period

• If you have worked for more than 6 months in the last year, it is rounded up to the next full year.
• If you have worked for 6 months or less, it is rounded down.

Example: 7 years 7 months → 8 years; 7 years 5 months → 7 years.

Employees not covered under the Act

For employees not covered under the Act (e.g., some small organisations), many employers follow this industry practice:

Here, 30 is used instead of 26, assuming 30 days in a month. Our calculator lets you switch between “covered” and “not covered” to see the difference.

Step-by-step: How this calculator works

1. Check eligibility
   If you select “Resignation / Retirement” and your service is less than 5 years, the tool shows a warning that you may not be eligible under the Act (unless death/disablement).
2. Round years of service
   We convert your years and months into “completed years” using the 6-month rounding rule.
3. Apply the correct formula
   
   • Covered under Act → divide by 26.
   • Not covered → divide by 30.
4. Apply the statutory cap
   For non-government employees, the Income Tax Act provides an exemption limit (currently ₹20 lakh). You can adjust this cap in the calculator if the law changes.
5. Estimate taxability
   For government employees, we show gratuity as fully exempt.
   For others, we show:
   • Exempt amount = min(calculated gratuity, exemption cap)
   • Taxable amount = calculated gratuity − exempt amount

Example calculation

Suppose:

• Last drawn basic + DA = ₹50,000 per month
• Service = 7 years 8 months
• Employee is covered under the Act

Step 1: Round service years

• 7 years 8 months → 8 completed years (because months > 6)

Step 2: Apply formula

If the exemption cap is ₹20,00,000, the entire ₹2,30,770 would be exempt (assuming no other gratuity received earlier from the same employer or previous employers in the same lifetime limit).

Tax rules on gratuity (high-level)

1. Government employees

• Gratuity received by Central/State/Local government employees is generally fully exempt from tax.

2. Non-government employees covered under the Act

The tax-exempt portion is the least of:

• Actual gratuity received, or
• Statutory limit (e.g., ₹20,00,000 – subject to change), or
• Amount calculated using the formula under the Act.

Any amount above this is taxable as “Income from Salary”.

3. Non-government employees not covered under the Act

The exempt amount is the least of:

• Actual gratuity received, or
• Statutory limit (e.g., ₹20,00,000 – subject to change), or
• ½ month’s average salary for each completed year of service, where average salary is based on the last 10 months’ salary.

Our calculator uses a simplified approach based on last drawn salary. For precise tax computation, especially for non-covered employees, consult a tax professional.

Limitations & disclaimer

• This tool is for educational and planning purposes only.
• It assumes continuous service with one employer and does not handle complex cases like multiple employers, breaks in service, or contractual arrangements.
• Tax laws, exemption limits, and judicial interpretations change over time. Always confirm with your HR department, company policy, and a qualified tax or legal advisor before making decisions.

FAQs

Is gratuity mandatory for employers?

For establishments covered under the Payment of Gratuity Act, 1972, payment of gratuity to eligible employees is mandatory. Non-compliance can attract penalties.

Can my employer forfeit my gratuity?

The Act allows partial or full forfeiture of gratuity in cases of termination for certain types of misconduct (e.g., moral turpitude, riotous or disorderly conduct, or acts causing loss or damage to the employer’s property). The exact conditions are specific and should be interpreted with legal advice.

Is gratuity calculated on CTC or only basic salary?

Gratuity is calculated on last drawn basic salary plus dearness allowance, not on total CTC. Other allowances (HRA, special allowance, bonuses, etc.) are generally not included unless specifically treated as part of basic by your employer’s policy.

Can I receive gratuity while still employed?

Gratuity is normally payable only on separation from the employer (resignation, retirement, death, disablement, etc.). Some employers may offer advance or partial payments as part of internal policies, but that is separate from the statutory gratuity entitlement.

Does changing departments or designations affect gratuity?

No. As long as you remain continuously employed by the same legal employer, internal transfers, promotions, or role changes do not break your gratuity-eligible service.