Gratuity Calculator

How to Use the Gratuity Calculator

Using the calculator is simple and takes less than a minute.

Step 1 – Enter Last Drawn Salary

Enter your Basic Salary + Dearness Allowance (DA) per month.

Example: If Basic salary is ₹40,000 and DA is ₹10,000 → Enter ₹50,000

Step 2 – Enter Years of Service

Enter the total years you worked with the employer.

If you worked 7 years 8 months, enter 8 years because the calculator automatically applies the rounding rule.

Step 3 – View Your Gratuity Amount

The calculator applies the formula:

Gratuity = (Salary × 15 × Years of Service) ÷ 26

and instantly shows your estimated gratuity payout.

Example Using the Calculator

Result

Gratuity = (60,000 × 15 × 10) ÷ 26

Gratuity = ₹3,46,154 (approx.)

What Is Gratuity?

Gratuity is a lumpsum payment made by an employer to an employee as a reward for long-term service.

The benefit is governed by the Payment of Gratuity Act, 1972, which applies to organisations employing 10 or more employees.

Employees become eligible for gratuity when they

• Resign
• Retire
• Are terminated (except certain misconduct cases)

In case of death or permanent disability, the 5-year minimum service rule does not apply, and gratuity is paid to the employee or nominee.

Gratuity Formula in India

Under the Payment of Gratuity Act, 1972, gratuity is calculated using the formula:

Gratuity = (Last Drawn Salary × 15 × Years of Service) ÷ 26

Where,

• Last Drawn Salary = Basic Salary + Dearness Allowance
• 15 = 15 days' wages for every year of service
• 26 = Average working days in a month
• Years of Service = Completed years of service

The formula assumes 15 days of salary for each completed year of service.

How Years of Service Are Counted (Important Rounding Rule)

Gratuity is calculated based on completed years of service.

After counting full years, the remaining months in the final year are evaluated.

Rule,

• More than 6 months → counted as 1 year
• 6 months or less → ignored

Examples

Only the final incomplete year is checked for rounding.

Gratuity Calculation Examples

Example 1

Basic + DA: ₹30,000

Years of Service: 6

Gratuity = (30,000 × 15 × 6) ÷ 26

Gratuity = ₹1,03,846

Example 2

Basic + DA: ₹75,000

Years of Service: 12

Gratuity = (75,000 × 15 × 12) ÷ 26

Gratuity = ₹5,19,231

Example 3 – Rounding Rule Impact

Salary: ₹50,000

Service: 7 years 8 months

Since service exceeds 6 months in the final year, it becomes 8 years.

Gratuity = (50,000 × 15 × 8) ÷ 26

Gratuity = ₹2,30,769

Example 4 – Higher Salary Scenario

Salary: ₹1,50,000

Service: 20 years

Gratuity = (1,50,000 × 15 × 20) ÷ 26

Gratuity = ₹17,30,769

This approaches the statutory ₹20 lakh gratuity ceiling.

Maximum Gratuity Limit

The maximum gratuity payable under the Payment of Gratuity Act, 1972 is ₹20 lakh.

If calculated gratuity exceeds ₹20 lakh:

• The employer may choose to pay more
• However, tax benefits may apply only up to the permitted limit

Gratuity Eligibility Rules

You are eligible for gratuity if,

• You have completed 5 years of continuous service
• You resign, retire, or are terminated
• Your employer has 10 or more employees

The 5-year rule does not apply in case of,

• Death
• Permanent disability

Is Gratuity Applicable After 4 Years 240 Days?

The law generally requires 5 years of continuous service.

However, certain judicial interpretations have considered 4 years and 240 days in the fifth year as qualifying service in some circumstances.

This interpretation arose from rulings such as:

Madras High Court – Mettur Beardsell Ltd. vs Regional Labour Commissioner (1998)

The court held that if an employee completes 240 days in the fifth year, it may qualify as continuous service.

However:

• This interpretation is not uniformly applied
• Employers may follow different policies

Employees should confirm with HR or legal advisors before relying on this rule.

Gratuity Tax Exemption Rules

Gratuity taxation is governed by Section 10(10) of the Income Tax Act, 1961.

Government Employees

Gratuity received by Central or State Government employees is fully tax-exempt.

Private Sector Employees (Covered Under the Gratuity Act)

The tax-exempt portion is the lowest of the following:

• ₹20 lakh
• Actual gratuity received
• Gratuity calculated using the statutory formula

Private Sector Employees (Not Covered Under the Act)

The exemption is the least of

• ₹20 lakh
• Actual gratuity received
• Half month's salary × years of service

Factors That Affect Your Gratuity Amount

Your gratuity payout depends on several factors.

1. Last Drawn Salary

Higher salary leads to a higher gratuity payout because the formula uses last drawn Basic + DA

2. Total Years of Service

The longer you stay with an employer, the larger your gratuity amount.

For example:

3. Salary Increments

Promotions and salary hikes significantly increase gratuity because it is calculated on the final salary, not the average salary.

4. Rounding Rule (6 Months)

Completing more than 6 months in the final year increases the service count and therefore the gratuity amount.

Gratuity vs EPF vs Pension