What This Calculator Does
This gratuity calculator computes the lump-sum amount payable to employees in India under the Payment of Gratuity Act 1972. It uses your last drawn basic + DA salary and total years of service. Gratuity is tax-free up to ₹20 lakh under Section 10(10) of the Income Tax Act.
Inputs Explained
- Last Drawn Basic + DA (₹): Your monthly basic salary plus dearness allowance at the time of leaving.
- Years of Service: Total complete years worked. The Act requires minimum 5 years of continuous service for eligibility.
- Coverage Type: Most private companies are covered under the Gratuity Act. Government employees follow different rules.
How It Works
The standard formula multiplies your last drawn salary (basic + DA) by 15/26 (representing 15 days' wages in a 26-day working month) and by the number of completed years of service. A part-year of 6 months or more is rounded up to a full year.
Formula / Logic Used
Gratuity Calculator (India)
Calculate gratuity payable on retirement or resignation as per Indian law.
Step-by-Step Example
Last Drawn Basic + DA: ₹50,000/month
Years of Service: 10 years
Calculation: (50,000 × 15 × 10) ÷ 26 = ₹2,88,461
Gratuity Amount: ₹2,88,461 — entirely tax-free (well under ₹20 lakh cap).
For a service of 10.5 years, the calculator rounds up to 11 years (since 6+ months counts as a full year).
Use Cases
- Resignation planning: Know your gratuity entitlement before submitting your resignation.
- Retirement preparation: Estimate the lump sum you'll receive at superannuation.
- Job change negotiation: Confirm gratuity you'll forfeit if you leave before completing 5 years.
- Tax planning: Identify whether your gratuity exceeds the ₹20 lakh tax-free limit.
- Final settlement check: Verify the gratuity figure on your full and final settlement statement.
Assumptions and Limitations
- The 5-year minimum service rule has narrow exceptions: death or disablement of the employee.
- The ₹20 lakh tax-free cap applies cumulatively across all employments — keep records of past gratuity received.
- For employees not covered under the Act, the formula uses 30 days instead of 26 in the divisor.
- Gratuity calculation excludes overtime, bonuses, commissions, and HRA — only basic + DA counts.
Frequently Asked Questions
Who is eligible for gratuity in India?
Any employee who has completed 5 or more years of continuous service with the same employer in an organization with 10 or more employees. The 5-year rule is waived in case of death or permanent disability.
What is the gratuity formula?
For employees covered under the Act: Gratuity = (Last drawn basic + DA × 15 × completed years of service) ÷ 26. The 15/26 ratio represents 15 days' wages per year, calculated on a 26-day working month.
Is gratuity tax-free?
Yes, up to ₹20 lakh under Section 10(10) of the Income Tax Act. Any amount above this limit is taxable as salary income. The ₹20 lakh limit is cumulative across all employments in your lifetime.
What if I have served 4 years 11 months?
You are not eligible. The Act requires 5 complete years (or 4 years + 240 days in some interpretations supported by court rulings). Talk to your HR if you're close to the threshold.
Does the ₹20 lakh limit apply to PSU and government employees?
Government employees receive gratuity per separate rules and the entire amount is tax-free regardless of size. The ₹20 lakh cap applies to private sector and PSU employees covered under the Act.
How are part-years counted?
6 months or more is rounded up to a full year; less than 6 months is dropped. So 10 years 7 months counts as 11 years; 10 years 5 months counts as 10 years.
Can my employer refuse to pay gratuity?
No, if you meet the eligibility criteria. Gratuity is a statutory right under the Act. Non-payment can be challenged before the Controlling Authority under the Gratuity Act, with penalty and interest.
What if I'm fired for misconduct?
The employer can forfeit gratuity in cases of willful damage, riotous behavior, or termination for moral turpitude proven during employment. Forfeiture must follow due process and is challengeable.
Sources and References
- Payment of Gratuity Act 1972 — Original Act PDF from the Ministry of Labour & Employment.
- Income Tax India — Section 10(10) — Tax exemption rules for gratuity.
- Ministry of Labour & Employment — Government source for gratuity rules and updates.
- India Code — Labour Laws — Authoritative repository of Indian labour legislation.