Gratuity Calculator

What This Tool Does

This calculator estimates the gratuity amount an employee is entitled to receive from their employer. Enter your last drawn basic salary plus Dearness Allowance and your total years of service, and it returns the gratuity payable under the Payment of Gratuity Act 1972. It is useful for employees approaching retirement, switching jobs, or simply planning their finances around their expected gratuity payout.

You can also use this Compound Interest Calculator.

How It’s Calculated

The standard formula for gratuity applicable to employees covered under the Payment of Gratuity Act is:

G = n × b × 15 ÷ 26

Where:

• n = number of completed years of service
• b = last drawn basic salary + Dearness Allowance (DA)
• 15 = days of salary per year of service
• 26 = working days in a month (Sundays excluded)

Worked Example:

Basic salary + DA: ₹40,000 per month
Years of service: 8 years

G = 8 × 40,000 × 15 ÷ 26 = ₹1,84,615

The 15/26 factor reflects that gratuity is calculated at 15 days of wages for each completed year, based on a 26-working-day month.

Edge Cases and Special Rules

Rounding of tenure: If you have worked for 17 years and 7 months or more, it rounds up to 18 years. If the fraction is 6 months or less, it rounds down. So 17 years and 4 months counts as 17 years, while 17 years and 8 months counts as 18.

Maximum cap: The gratuity amount cannot exceed ₹20 lakh under current rules. Any amount paid beyond this ceiling is classified as ex gratia — a voluntary payment by the employer — and is not governed by the Act.

Employees not covered under the Act: For organisations with fewer than 10 employees, or where the employer is not covered under the Payment of Gratuity Act, a different formula applies: G = n × b × 15 ÷ 30. This uses 30 days instead of 26, which results in a slightly lower payout.

Minimum service requirement: Gratuity is payable only after completing 5 continuous years of service with the same employer. The only exceptions are death or permanent disability due to accident or illness, in which case the 5-year rule does not apply and gratuity is paid regardless of tenure.

Piece-rate workers: For employees paid on a piece-rate basis, the average total wages over the last three months are used as the base salary for the calculation.

Different Contexts and Conventions

Government employees: Central and state government employees are governed by separate gratuity rules under the Central Civil Services (Pension) Rules. The calculation method and ceiling may differ from the private sector formula. The 7th Pay Commission revised gratuity ceilings for central government employees — check the applicable rules for your specific service category.

Private sector employees: The formula above (15/26) applies to most private sector employees covered under the Payment of Gratuity Act. Employers in some states may follow state-specific amendments — consult your HR department or a labour law professional for state-specific variations such as Maharashtra.

New Labour Code: The Code on Social Security 2020 proposes changes to gratuity eligibility, including coverage for fixed-term contract workers from day one of employment. Full implementation across states is ongoing — the existing Act continues to apply until the new code is notified in your state.

Taxation on Gratuity

The tax treatment depends on your employment category:

Government employees: Gratuity received by central and state government employees is fully exempt from income tax with no upper limit.

Private sector employees (covered under the Act): The least of the following three amounts is exempt from tax:

• ₹20 lakh
• Actual gratuity received
• Eligible gratuity as per the formula

Private sector employees (not covered under the Act): The least of the following is exempt:

• ₹20 lakh
• Actual gratuity received
• Half month’s average salary for each completed year of service

The total tax-exempt gratuity across all employers in a lifetime cannot exceed ₹20 lakh.

Who Uses This

Employees nearing retirement who want to know what to expect in their final settlement
Mid-career professionals switching jobs checking whether they have crossed the 5-year eligibility threshold
HR and payroll teams calculating gratuity liability for employees leaving the organisation
Private company employees verifying their entitlement before raising a claim with their employer
Anyone planning long-term finances who wants to factor gratuity into their retirement corpus estimate

Gratuity vs. Ex Gratia

Gratuity is a statutory payment — the employer is legally required to pay it once eligibility conditions are met. Ex gratia is a voluntary payment made at the employer’s discretion, typically when the gratuity amount exceeds the statutory ceiling of ₹20 lakh or when the employer chooses to reward service beyond the legal requirement. Ex gratia payments are not governed by the Payment of Gratuity Act and their tax treatment differs.

FAQ

Who is eligible for gratuity in India?

Any employee who has completed at least 5 continuous years of service with the same employer is eligible, provided the organisation employs 10 or more people. Death or permanent disability waives the 5-year requirement.

What counts as salary for gratuity calculation?

Only basic salary plus Dearness Allowance is used. HRA, incentives, bonuses, and other allowances are not included in the base for gratuity calculation.

I have worked for 16 years and 8 months. How many years count?

Since 8 months exceeds 6 months, it rounds up to 17 years. Your gratuity will be calculated on 17 completed years of service.

Can I receive gratuity if I resign before 5 years?

Generally no, unless you are permanently disabled due to an accident or illness. Resignation before completing 5 years forfeits the gratuity entitlement in most cases.

Is gratuity paid immediately after leaving a job?

The employer is required to pay gratuity within 30 days of it becoming payable. If delayed beyond this period, the employer is liable to pay simple interest on the outstanding amount.

A Note on Results

This calculator provides an estimate based on the Payment of Gratuity Act 1972 formula and the inputs you enter. Actual gratuity payable may vary based on your employer’s coverage status, applicable state rules, rounding conventions, and any amendments under the new labour codes. For an exact figure or to raise a formal claim, consult your HR department or a qualified labour law professional.