Gratuity Calculator

What Is Gratuity?

Gratuity is a lump sum an employer pays when you leave after long service - on resignation, retirement, or death or disability. For employers covered by the Payment of Gratuity Act, 1972 (generally those with 10 or more employees), it is a legal right once you complete five years of continuous service. This calculator works out the amount and the tax-free part.

How to Use It

1. Enter your last drawn monthly basic pay plus dearness allowance.
2. Enter your years and months of service.
3. Choose whether your employer is covered by the Gratuity Act.

Example

With a last basic pay of ₹50,000 and 10 years 8 months of service at a covered employer, the service counts as 11 years (more than six months rounds up), so the gratuity is ₹50,000 × 15 ÷ 26 × 11 = ₹3,17,308. All of it is within the ₹20 lakh tax-free limit.

The Two Formulas

• Covered by the Act: last salary × 15 ÷ 26 × years of service. A final part-year of more than six months counts as a full year.
• Not covered: last salary × 15 ÷ 30 × completed years only. Employers not covered by the Act do not have to pay gratuity, but many do under their own policy.

The 26 in the first formula is the number of working days in a month; 15 days' wages are paid for each year of service.

Tax on Gratuity

For private-sector employees, gratuity is tax-free up to a lifetime limit of ₹20 lakh; anything above that is taxed as salary. Central government employees have a higher ceiling of ₹25 lakh, and their gratuity is fully exempt.

Limitations

The five-year rule has exceptions for death and disability, and courts have sometimes counted 4 years and 240 days as five years - check your situation if you are close. The calculator does not cover government pension rules or company policies that pay more. For your other retirement savings, use the EPF Calculator.