Gratuity Calculator - Calculate Gratuity Amount Online
Calculate your gratuity amount based on last drawn salary and years of service. Check eligibility, understand the formula, and know tax implications.
Gratuity Calculator
Monthly Basic Salary + Dearness Allowance
Total Service: 10 years 0 months
Companies with 10+ employees are covered under the Act
Gratuity Formula
Gratuity = (15 × Last Drawn Salary × Years of Service) / 26
* Minimum 5 years of continuous service required. Months > 6 are rounded up to 1 year.
Understanding Gratuity
Gratuity is a retirement benefit provided by employers as a token of appreciation for long-term service. It's governed by the Payment of Gratuity Act, 1972, which applies to establishments with 10 or more employees.
Gratuity Formula:
Gratuity = (15 × Last Drawn Salary × Years of Service) / 26
Key Points:
- Last Drawn Salary: Basic Salary + Dearness Allowance (DA)
- 15 days: Gratuity is calculated at 15 days' wages for each year
- 26 days: Number of working days in a month (for Act-covered employees)
- Rounding: Service > 6 months is rounded up to 1 year
Gratuity Eligibility Criteria
Eligible If:
- Completed 5 years of continuous service
- Resignation after 5 years
- Retirement (superannuation)
- Death or disability (no minimum service)
- Voluntary retirement scheme (VRS)
Not Eligible If:
- Less than 5 years of continuous service
- Termination for misconduct causing damage
- Termination for moral turpitude offence
- Contract/temporary employment (unless specified)
Gratuity Tax Rules
| Category | Tax-Free Limit | Taxable Amount |
|---|---|---|
| Government Employees | Entire amount tax-free | Nil |
| Covered under Gratuity Act | Up to Rs 20 Lakhs | Amount above Rs 20L |
| Not covered under Act | Least of: Rs 20L / Actual / 15 days per year | Balance amount |
Covered vs Non-Covered Companies — and What Your Years of Service Are Actually Worth
India's Payment of Gratuity Act, 1972 applies only to companies with 10 or more employees. For those, gratuity is a statutory right. For smaller companies, gratuity is contractual — the employer can offer it, but isn't legally bound to. The math also differs slightly. Below is the actual payout a person earning ₹50,000/month (basic + DA) would receive at different exit points, under both regimes.
| Years Served | Eligible? | Covered Co. (Act formula) | Non-Covered Co. (15/30 formula) | Difference |
|---|---|---|---|---|
| 4 years | No | ₹0 (minimum 5 years) | ₹0 | Both nil |
| 4 years 240 days (~4.66 yr) | Yes* | ₹1,15,385 | ₹0 (still under 5 yr) | +₹1.15 L for covered |
| 5 years exact | Yes | ₹1,44,231 | ₹1,25,000 | +₹19,231 for covered |
| 7 years | Yes | ₹2,01,923 | ₹1,75,000 | +₹26,923 |
| 10 years | Yes | ₹2,88,461 | ₹2,50,000 | +₹38,461 |
| 15 years | Yes | ₹4,32,692 | ₹3,75,000 | +₹57,692 |
| 20 years | Yes | ₹5,76,923 | ₹5,00,000 | +₹76,923 |
| 25 years | Yes | ₹7,21,154 | ₹6,25,000 | +₹96,154 |
*The Madras High Court ruled (Mettur Beardsell case) that under the Act, completing 4 years and 240 days counts as 5 years for gratuity eligibility. Several other High Courts have followed this. Not yet a Supreme Court ruling, but most covered companies now follow it.
Formula difference explained: Covered companies use (Last drawn × 15 × Years) ÷ 26 — the 26 represents working days in a month (excluding 4 weekly offs). Non-covered companies use (Last drawn × 15 × Years) ÷ 30. That's why covered employees get ~15% more for the same tenure and salary. The Act's formula is more generous because it assumes a 6-day work week.
Tax Exemption — How Much of Your Gratuity is Tax-Free?
Gratuity tax exemption was raised to ₹20 lakh under the Income Tax Act in 2018. But the exact exemption depends on whether you're government, private (covered), or private (non-covered) — and the rule is more nuanced than it appears.
| Employee Category | Tax-Free Limit | Exempt is Least of: |
|---|---|---|
| Govt employees (Central/State/Local) | Fully exempt | Entire gratuity is tax-free — no upper limit |
| Private — covered by Act | ₹20 L | (a) ₹20 lakh, (b) Actual gratuity received, (c) 15 days' salary × years served |
| Private — not covered by Act | ₹20 L | (a) ₹20 lakh, (b) Actual gratuity received, (c) Half-month avg salary × years served |
The Lifetime ₹20 L Limit
The ₹20 lakh exemption is a lifetime cap, not per-employer. If you received ₹15 L tax-free gratuity from Employer A, only ₹5 L of any future gratuity is tax-free. Most people don't track this — and IT department does. Keep records of past gratuity payouts for cross-employer claims.
"Salary" Definition Matters
Gratuity calculation uses "last drawn basic + DA" — not the full CTC. If your CTC is ₹15 L but basic is only ₹4 L, gratuity is calculated on ₹4 L. Companies sometimes structure low basic to reduce gratuity liability. Check your payslip — if basic is below 50% of CTC, your gratuity payout will be much lower than expected.
The death-in-service exception: If an employee dies during service, gratuity is paid to the nominee/heir regardless of years served (the 5-year minimum doesn't apply). Also, the entire gratuity in such cases is fully tax-free in the hands of the recipient — unlike normal retirement gratuity which has the ₹20 L cap. This is why nominating beneficiaries via Form F to HR is critical from day one of employment.
What to Do If Your Gratuity Isn't Paid — The Recovery Process
Under Section 7 of the Act, gratuity must be paid within 30 days of becoming due (i.e., 30 days after the employee leaves). Beyond that, the employer owes simple interest at 10% per annum on the delayed amount. Despite the law, gratuity withholding by employers is common — particularly during disputed exits, layoffs, or company financial trouble. Here's the recovery escalation path.
Step 1: Form I — Written Demand
Submit Form I (under Gratuity Rules) to the employer in writing — by registered post with acknowledgement. This formally triggers the 30-day clock. Keep the acknowledgement; it's your proof of demand date. Most employers respond at this stage to avoid further escalation.
Step 2: Form N — Controlling Authority
If unpaid after 30 days, file Form N with the Controlling Authority under the Gratuity Act (usually the Assistant/Deputy Labour Commissioner in your state). This is a quasi-judicial body. Hearings are typically scheduled within 60–90 days. Order can include the gratuity + 10% interest + penalty.
Step 3: Appeal to Appellate Authority
Either party can appeal the Controlling Authority's order to the Appellate Authority (usually a District Judge or Joint Labour Commissioner) within 60 days. This adds 6–9 months. Most disputes settle here because by this stage the legal cost exceeds the disputed amount.
Step 4: Penalties & Criminal Liability
Non-payment of gratuity is a criminal offence under Section 9 — punishable by imprisonment up to 6 months and/or fine up to ₹20,000 for the employer. This is rarely invoked but is the ultimate enforcement lever. Mention in the Form N hearing if employer continues to withhold.
Forfeiture grounds — what employers can legally withhold: Gratuity can be forfeited only if the employee was terminated for (a) willful misconduct causing loss/damage to property, OR (b) riotous/disorderly conduct, OR (c) any offence involving moral turpitude. Even then, forfeiture is limited to the extent of loss caused — not full gratuity. Vague "performance issues" or resignation under pressure are not valid forfeiture grounds.
For the planning side: Use this calculator alongside the Retirement Calculator and EPF Calculator. Gratuity + EPF + NPS together form your "exit lump sum" — for a 30-year career on ₹50k starting salary growing 8% annually, this lump sum typically lands between ₹35 L and ₹65 L. Knowing this number lets you plan the post-retirement portfolio allocation correctly.
Frequently Asked Questions
What is gratuity and who is eligible?
Gratuity is a lump sum benefit paid by employers to employees upon resignation, retirement, or death. To be eligible, you need minimum 5 years of continuous service with the same employer. The Payment of Gratuity Act, 1972 covers establishments with 10 or more employees.
How is gratuity calculated?
Gratuity = (15 × Last Drawn Salary × Years of Service) / 26. Last drawn salary includes Basic + Dearness Allowance. For employees not covered under the Act, the divisor is 30 instead of 26. Service above 6 months is rounded up to 1 year.
What is the maximum gratuity limit?
The maximum gratuity limit is Rs 20,00,000 (20 Lakhs) as per current law. Any gratuity amount above this limit may be taxable. This limit was increased from Rs 10 Lakhs to Rs 20 Lakhs in 2019.
Is gratuity taxable?
Gratuity received up to Rs 20 Lakhs is completely tax-free for employees covered under the Payment of Gratuity Act. For government employees, entire gratuity is tax-free. Any amount above Rs 20 Lakhs is taxable as per your income tax slab.
Can I get gratuity before 5 years?
Generally, you need 5 years of continuous service to be eligible. However, in case of death or disability, gratuity is payable regardless of service period. Some companies may have policies for voluntary gratuity before 5 years.