Gratuity Calculator India
Calculate your gratuity amount online based on last drawn salary and years of service. Get instant results with detailed breakup, amount in words, and tax information under the Payment of Gratuity Act, 1972.
Calculate Your Gratuity Amount
Active Currency:
Basic Salary + Dearness Allowance (DA). Exclude HRA, bonuses, and other allowances.
6+ months are rounded up to a full year in gratuity calculation.
This calculator uses the Payment of Gratuity Act, 1972 (India) formula. Minimum 5 years of continuous service required (with exceptions for death/disability).
Your Gratuity Result
Estimated Gratuity Amount
In words:
Calculation Summary
Understanding Gratuity in India
Gratuity is a retirement benefit paid by employers to employees as a token of appreciation for their long-term service. It's a statutory obligation under the Payment of Gratuity Act, 1972, and applies to establishments with 10 or more employees. Gratuity provides financial security to employees after retirement, resignation, or in case of death or disability.
What is Gratuity?
Gratuity is a lump-sum payment made by an employer to an employee who has rendered continuous service for at least five years. It's calculated based on the last drawn salary and the number of years worked. The amount is tax-free up to ₹20 lakhs under Section 10(10) of the Income Tax Act, 1961.
History and Purpose of Gratuity
The Payment of Gratuity Act was introduced in 1972 to ensure that employees receive monetary recognition for their dedication and service. Before this Act, gratuity was paid voluntarily by some employers, but there was no legal obligation. The Act made it mandatory for all eligible establishments and standardized the calculation method across industries.
The primary purpose of gratuity is to provide financial assistance to employees after retirement or termination of employment. It serves as:
- Retirement Fund: Helps employees financially after they stop working
- Loyalty Reward: Recognizes long-term commitment to the organization
- Social Security: Provides a safety net for employees and their families
- Succession Support: Assists families in case of employee death
The Gratuity Formula Explained
The standard formula under the Payment of Gratuity Act, 1972 is:
Gratuity = (Last Drawn Monthly Salary × 15 × Completed Years of Service) ÷ 26
Breaking down the formula:
- Last Drawn Monthly Salary: Basic salary + Dearness Allowance (DA). This doesn't include HRA, bonuses, incentives, or other allowances.
- 15: Represents 15 days of salary for each completed year of service. This is a statutory requirement.
- Completed Years: Total years worked, with 6 or more months rounded up to a full year.
- 26: Represents the number of working days in a month (excluding Sundays). For monthly wage employees, the month is considered to have 26 working days.
Why 26 Days?
The divisor 26 comes from assuming a 6-day work week (excluding Sundays). In a month with 30 days, there are approximately 4-5 Sundays, leaving 25-26 working days. This standardization ensures uniformity in gratuity calculation across all sectors.
Eligibility Criteria for Gratuity
Not all employees are automatically eligible for gratuity. The Payment of Gratuity Act specifies certain conditions:
✅ Eligible Employees
- • Completed 5 years of continuous service
- • Working in establishments with 10+ employees
- • Covered under the Act (most private sector jobs)
- • Resignation, retirement, or termination
- • Death or permanent disability (no 5-year rule)
❌ Not Eligible
- • Completed less than 5 years (except death/disability)
- • Termination due to misconduct or moral turpitude
- • Establishments with fewer than 10 employees (unless covered voluntarily)
- • Apprentices and trainees in certain cases
The 5-Year Rule: Important Clarification
While the Act states "5 years of continuous service," courts and tribunals have interpreted this to mean 4 years and 240 days (approximately 4 years and 8 months or 4.75 years). This interpretation accounts for partial years and ensures employees aren't unfairly denied gratuity due to a few missing days.
Continuous service means uninterrupted employment with the same employer. However, the following situations do NOT break continuity:
- Authorized leave (sick leave, casual leave, earned leave)
- Temporary layoffs due to business reasons
- Maternity leave
- Strikes or lockouts (legal or illegal)
- Accidents or illness preventing work
Real-World Gratuity Calculation Examples
Example 1: Private Sector Employee (Standard Case)
Scenario: Rajesh worked in an IT company for 10 years. His last drawn salary (Basic + DA) is ₹60,000 per month. He resigned voluntarily.
Tax Implication: This amount is completely tax-free as it's below the ₹20 lakh exemption limit under Section 10(10).
Example 2: Employee with Partial Year Service
Scenario: Priya worked in a manufacturing company for 7 years and 8 months. Her last salary is ₹45,000.
Key Learning: Because Priya worked 8 months beyond 7 years (more than 6 months), her gratuity is calculated for 8 complete years, not 7.
Example 3: Death or Disability Case
Scenario: Amit worked for 3 years and 4 months before passing away in an accident. His last salary was ₹50,000.
Key Learning: Even though Amit didn't complete 5 years, his family is eligible for gratuity because the payment is triggered by death. The 5-year rule is waived in cases of death or permanent disability.
Example 4: High-Salary Employee (Tax Impact)
Scenario: Neha, a senior manager, worked for 25 years with a final salary of ₹1,50,000 per month.
Tax Implication: Out of ₹21,63,462, only ₹20,00,000 is tax-exempt. The remaining ₹1,63,462 will be added to Neha's taxable income for that financial year.
Taxation of Gratuity
Gratuity received by employees is partially or fully exempt from income tax under Section 10(10) of the Income Tax Act, 1961. The exemption rules differ based on whether you're a government employee or a private sector employee.
Government Employees
Exemption: Entire gratuity amount is tax-free
Central, state, and local government employees receive 100% tax exemption on gratuity, regardless of the amount received.
Private Sector Employees
Exemption Limit: Up to ₹20 lakhs
For employees covered under the Payment of Gratuity Act, gratuity up to ₹20 lakhs is tax-free. Any amount above this is taxable.
Calculating Taxable Gratuity
For private sector employees, the tax-exempt gratuity is the least of the following three amounts:
- ₹20,00,000 (maximum exemption limit)
- Actual gratuity received from the employer
- Calculated gratuity using the formula: (Last salary × Years of service × 15) ÷ 26
Any amount exceeding the exempt portion is added to your gross total income and taxed according to your income tax slab.
Tax Calculation Example
An employee receives ₹25,00,000 as gratuity. Based on the formula, their calculated eligible gratuity is ₹22,00,000.
Common Gratuity Calculation Mistakes
Including HRA and Other Allowances
Gratuity is calculated only on Basic + DA. Including HRA, transport allowance, or bonuses inflates the calculation and is legally incorrect.
Forgetting the 6-Month Rule
Many people calculate gratuity using exact years and months. Remember: 6+ months should be rounded up to a full year.
Using 30 Days Instead of 26
The divisor in the gratuity formula is 26 (working days), not 30 (calendar days). Using 30 significantly reduces the gratuity amount.
Assuming All Resignations Qualify
If you resign before completing 5 years (except death/disability), you're not legally entitled to gratuity under the Act, though some companies pay voluntarily.
Not Knowing the Tax Exemption Limit
Many employees assume all gratuity is tax-free. Only up to ₹20 lakhs is exempt; amounts beyond this are taxable.
When Can Gratuity Be Forfeited?
While gratuity is a statutory right, there are specific circumstances under which an employer can forfeit (partially or completely) an employee's gratuity:
Grounds for Forfeiture
- Termination for misconduct: If an employee is terminated due to riotous or disorderly conduct, willful damage to employer property, or any act of violence, the gratuity can be wholly forfeited.
- Moral turpitude: Termination for an offense involving moral turpitude (e.g., theft, fraud, embezzlement) can result in complete forfeiture of gratuity.
Important: The employer must prove the misconduct with proper documentation and due process. Gratuity cannot be denied arbitrarily or for minor infractions like poor performance or minor policy violations.
How to Use the Gratuity Calculator
Select Your Currency
Choose your currency or use Auto Detect. The calculator works for multiple currencies but follows the Indian gratuity formula.
Enter Your Last Drawn Salary
Input your Basic Salary + Dearness Allowance (DA) only. Do not include HRA, transport, or other allowances.
Enter Service Period
Add your total years and any additional months. Remember: 6+ months will be rounded up to a full year.
Calculate and Review
Click Calculate to see your gratuity amount, including the amount in words and tax information.
Copy or Share Results
Use Copy Summary to save results, or Share via WhatsApp or other platforms.
Frequently Asked Questions
What is the maximum gratuity amount payable?
There is no maximum limit on the gratuity amount an employer can pay. However, only ₹20 lakhs is tax-exempt. Any amount beyond that is subject to income tax.
Can gratuity be paid in installments?
No, gratuity must be paid as a lump sum within 30 days of it becoming payable. If the employer delays payment beyond 30 days, they must pay simple interest on the amount.
Is gratuity different from PF and pension?
Yes. Gratuity is a one-time retirement benefit paid by the employer. PF (Provident Fund) is a monthly contribution by both employee and employer that accumulates with interest. Pension is a regular monthly payment after retirement.
What if my employer refuses to pay gratuity?
You can file a complaint with the Controlling Authority (usually the Assistant Labour Commissioner) in your area. The authority can direct the employer to pay gratuity along with interest and penalties.
Does gratuity apply to contract employees?
Contract employees are generally not covered under the Payment of Gratuity Act unless their contract explicitly mentions gratuity benefits. However, if a contract employee works continuously for 5 years, they may have legal grounds to claim gratuity.
Can I nominate someone for my gratuity?
Yes, you can nominate one or more persons to receive your gratuity in case of your death. The nomination should be made in Form F as prescribed under the Payment of Gratuity Rules.
Is this calculator accurate for all cases?
This calculator uses the standard formula under the Payment of Gratuity Act, 1972. However, some companies have more generous gratuity policies. Always verify the exact amount with your HR department or employer.
Important Disclaimer
This gratuity calculator provides estimates based on the Payment of Gratuity Act, 1972 (India). Actual gratuity amounts may vary based on your employer's specific policy, company rules, and individual employment contracts.
This tool is for informational and educational purposes only and does not constitute legal, financial, or professional advice. For official calculations, tax planning, or legal matters related to gratuity, please consult your HR department, a qualified chartered accountant, or a legal professional.