Gratuity Calculator

What is gratuity?

Gratuity is a lump-sum payment an employer gives to an employee as a reward for long and continuous service. It is governed by the Payment of Gratuity Act, 1972, which applies to every factory, mine, shop or establishment that has employed 10 or more people on any day in the preceding 12 months. Once the Act covers an establishment it continues to apply even if the headcount later falls below 10.

The formula this calculator uses is:

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

• Last Monthly Salary — your last drawn Basic pay plus Dearness Allowance (DA); allowances such as HRA and bonus are excluded
• 15 — 15 days of wages counted for each completed year
• 26 — the working days in a month deemed under the Act, treating the four Sundays as paid rest
• Years of Service — completed years, with the final part-year rounded on the 6-month rule

Covered vs non-covered establishments

The divisor in the formula depends on whether your employer is covered by the Act:

• Covered establishments (÷26): Gratuity = 15 × last drawn Basic + DA × years ÷ 26, and a part-year of more than 6 months rounds up to a full year.
• Non-covered establishments (÷30): Some employers pay gratuity voluntarily even though the Act does not apply. Here the formula uses the average of the last 10 months' Basic + DA and divides by 30 — the full calendar month — counting only fully completed years, with no rounding of the final part-year.

Because 26 is smaller than 30, the covered formula gives a slightly higher payout for the same salary and tenure. This calculator applies the covered (÷26) method.

A worked example

Suppose your last drawn Basic + DA is ₹50,000 and you complete 10 years of continuous service with a covered employer:

(15 × 50,000 × 10) ÷ 26 = 75,00,000 ÷ 26 = ₹2,88,462

Now compare the two methods for the same person. If your salary were ₹52,000 and you worked 12 years, a covered employer would owe 15 × 52,000 × 12 ÷ 26 = ₹3,60,000, while a non-covered employer using the ÷30 method would pay 15 × 52,000 × 12 ÷ 30 = ₹3,12,000 — about ₹48,000 less for identical service.

Gratuity payout at different salaries and tenures

The table below shows the covered-establishment formula value next to the amount actually payable after the ₹20 lakh statutory ceiling is applied. Notice that the cap only begins to bite at high salaries combined with long tenures.

The ₹20 lakh statutory cap

Under Section 4(3) of the Act, the maximum gratuity an employer is legally required to pay is ₹20 lakh, even when the 15/26 formula produces a larger figure — the ceiling was raised from ₹10 lakh to ₹20 lakh in 2018. This calculator applies the cap automatically and shows the uncapped formula value separately whenever it is exceeded.

Tax on gratuity — the least-of-three rule

Gratuity enjoys favourable tax treatment, but the exempt amount is not automatically the whole payout. For a non-government employee covered by the Act, the exemption under Section 10(10) is the least of these three amounts:

1. The actual gratuity received
2. ₹20 lakh, the lifetime ceiling across all employers
3. 15 days' salary for each completed year — that is, the 15/26 formula value

Whichever is smallest is exempt, and anything above it is added to your taxable income. Gratuity received by Central and State government employees is fully exempt. For non-covered employees the third limit is instead half a month's average salary for each completed year.

For example, if you receive ₹5,00,000 and the formula value is also ₹5,00,000, the whole amount is exempt because it is below ₹20 lakh. But if an employer pays ₹25 lakh as a goodwill gesture, only ₹20 lakh is exempt and the remaining ₹5 lakh is taxed at your slab.

When is gratuity payable — and when can it be forfeited?

Gratuity becomes payable when your employment ends after at least 5 years of continuous service — on retirement, superannuation, resignation, or termination. The 5-year minimum is waived if service ends due to death or disablement, in which case gratuity is payable regardless of tenure and goes to your nominee or legal heir. The employer must settle the amount within 30 days of it becoming due; a delay attracts simple interest.

Gratuity is not unconditional. Under Section 4(6), an employer may forfeit it — wholly or partly — where your services are terminated for wilful damage to company property (to the extent of the loss), or for riotous conduct, violence, or an offence involving moral turpitude committed during the course of employment.

How years of service are counted — the 6-month rule

Only completed years are counted, and the final part-year is rounded using the 6-month rule for covered establishments: more than 6 months rounds up to a full year, while 6 months or less is dropped.

• 10 years 7 months → counted as 11 years
• 10 years 4 months → counted as 10 years
• 10 years and exactly 6 months → counted as 10 years (it must be more than 6 months to round up)

Points to remember

1. Gratuity is based on your last drawn Basic + DA, not your total CTC.
2. The 5-year minimum is waived in case of death or disablement.
3. The lifetime tax-exempt limit is ₹20 lakh across all employers.
4. Employers may pay more than the statutory amount as goodwill, but the excess is fully taxable.

Gratuity is only one part of your exit and retirement benefits. Pair this estimate with the EPF calculator to project your provident fund corpus, and the NPS calculator if you also contribute to the National Pension System.