Gratuity Calculator
Calculate your gratuity amount based on last drawn salary and years of service under the Payment of Gratuity Act.
🏦Employment Details
Last Drawn Salary
₹60.0K
Service Period
15 years
Tax Implications
Gratuity Quick Reference
Formula Used
Gratuity = (Basic + DA) × 15 × Years / 26Gratuity by Service Years
Key Rules
- • Minimum 5 years of continuous service
- • Tax exempt up to ₹20,00,000
- • Service of 6+ months counts as full year
- • Payable on retirement, resignation, or death
- • Death/disability: No 5-year minimum needed
How the Gratuity Calculator Works
What Is Gratuity and Who Gets It
Gratuity is a lump-sum payment made by an employer to an employee as a token of appreciation for their service. It's governed by the Payment of Gratuity Act, 1972 and applies to any employee who has completed at least 5 years of continuous service with a single employer. The payment is made when the employee leaves the job — whether through retirement, resignation, or termination for reasons other than misconduct.
Unlike EPF or NPS, gratuity isn't funded by the employee. It's a benefit paid entirely by the employer from their own funds. Companies with 10 or more employees are required by law to provide gratuity and can fund it through a Group Gratuity Scheme with an insurance company. Smaller companies often pay from their balance sheet when the time comes.
The 5-year minimum is strictly enforced, with two exceptions: (1) death of the employee, in which case gratuity is paid regardless of service years, and (2) disability due to accident or disease, where again the 5-year requirement is waived.
The Two Gratuity Formulas
There are two gratuity formulas, and which one applies depends on whether your employer is covered under the Payment of Gratuity Act.
**For employers covered under the Act (companies with 10+ employees):** Gratuity = (Basic + DA) × 15 × Years of Service ÷ 26. The 15 represents 15 days of wages for each completed year, and 26 represents the standard working days in a month.
**For employers NOT covered under the Act:** Gratuity = (Basic + DA) × 15 × Years of Service ÷ 30. The only difference is the divisor — 30 (calendar days in a month) instead of 26 (working days). This means non-covered employees receive a smaller gratuity, about 13.3% less than covered employees with the same salary and service.
Most organised-sector employers in India are covered under the Act. If you're unsure whether your employer is covered, look at your offer letter or ask HR. The classification makes a material difference to your gratuity amount.
Taxation of Gratuity
Gratuity is one of the most tax-efficient benefits available to Indian employees. Up to ₹20 lakh of gratuity is completely exempt from income tax under Section 10(10). Amounts above ₹20 lakh are taxable as income in the year of receipt.
For government employees, the entire gratuity amount is tax-exempt regardless of the ₹20 lakh cap. This is why government employees with long tenures can receive gratuity of ₹30 lakh or more without paying any tax.
The ₹20 lakh exemption is a lifetime limit per employer — if you receive gratuity from two employers in your career, the total exemption across both is capped at ₹20 lakh. Amounts above this are added to your taxable income for the year and taxed at your marginal rate.
Step-by-Step Worked Example
Meet Priya, who has worked at a company covered under the Gratuity Act for 15 years. Her last drawn basic salary was ₹50,000/month and DA was ₹10,000/month. What gratuity is she entitled to?
- 1Last drawn salary (Basic + DA) = ₹50,000 + ₹10,000 = ₹60,000/month.
- 2Years of continuous service = 15.
- 3Gratuity formula (covered): (Basic + DA) × 15 × Years ÷ 26.
- 4= (₹60,000 × 15 × 15) ÷ 26.
- 5= ₹1,35,00,000 ÷ 26 = ₹5,19,231.
- 6Round to completed year: ₹5,19,231 (no rounding needed at 15 years exactly).
Result
Gratuity amount: ₹5,19,231
Tax status: Fully exempt (under ₹20 lakh cap)
Take-home gratuity: ₹5,19,231 (no TDS)
Comparable non-covered gratuity: (₹60,000 × 15 × 15) ÷ 30 = ₹4,50,000 (13.3% lower)
Note: If Priya had 6 months or more beyond 15 years of service, that would count as a 16th year, increasing gratuity.
Key Benefits & Use Cases
When to Use This Tool
- ✓Estimating the gratuity amount you'll receive when you leave your job.
- ✓Planning for retirement — gratuity is a lump-sum addition to your retirement corpus.
- ✓Comparing job offers — gratuity value at different basic salary levels.
- ✓Understanding the tax treatment of your gratuity before it's paid.
- ✓Verifying your employer's gratuity calculation against the formula.
Why It Matters
- →Tax-free up to ₹20 lakh — one of the most tax-efficient benefits available.
- →Paid entirely by the employer — no contribution from your salary.
- →Formula is transparent and calculable — you can verify your employer's numbers.
- →Amount scales with tenure — 15 years gives 15/26 of annual basic salary per year.
- →Protects retirement planning — a lump sum available at retirement for major expenses.
Who Should Use This Calculator
- ★Any salaried employee planning to leave or retire in the next 1–5 years.
- ★Employees evaluating a job offer and comparing gratuity benefits.
- ★Long-tenure employees who want to verify their employer's gratuity calculation.
- ★Anyone approaching retirement or considering a career change.
Both Categories
Calculate for employees covered and not covered under Gratuity Act.
Tax Analysis
See tax-free and taxable portions of your gratuity.
Service Table
Quick reference table showing gratuity for different service years.
How to Use
Select Type
Choose if covered under Gratuity Act or not.
Enter Salary
Set your last drawn basic salary and DA.
Enter Service
Enter total years of continuous service.
View Gratuity
See gratuity amount and tax implications.
The Formula
Gratuity = (Basic + DA) × 15 × Years / 26Frequently Asked Questions
Who is eligible for gratuity?
Any employee who has completed 5 or more years of continuous service with a single employer. In case of death or disability, the 5-year condition is waived — the employee (or their nominee) receives gratuity regardless of tenure.
Is gratuity taxable?
Gratuity is tax-exempt up to ₹20,00,000 for employees covered under the Act (Section 10(10)). Amounts above ₹20 lakh are taxed at your marginal rate. For government employees, the entire amount is tax-free regardless of the cap.
What if I served 4 years and 7 months?
Service of more than 6 months in the last year is rounded up to a full year. So 4 years 7 months = 5 years of service (eligible for gratuity). But 4 years 5 months = 4 years (not eligible). The 6-month cutoff is important.
Can an employer refuse gratuity?
No — gratuity is a statutory right, not a discretionary benefit. Employers must pay it if you meet eligibility. The only exception is termination for misconduct involving damage or destruction of employer's property, but this requires due process.
What is the maximum gratuity limit?
The statutory maximum gratuity payable is ₹20,00,000 under the Payment of Gratuity Act. This is also the tax-exemption limit. Amounts above this are taxable. The ₹20 lakh limit applies per employer lifetime.
Is gratuity paid on resignation?
Yes — gratuity is paid on resignation, retirement, or termination (except for misconduct), provided you've completed 5 years of continuous service. There's no requirement that you must retire at 58 or 60 to be eligible.
Can I nominate someone for my gratuity?
Yes. You should file a Nomination Form (Form F) with your employer naming your nominee(s). This is important — if you die during service, the nominee receives the gratuity without the 5-year requirement.
How is gratuity paid?
Gratuity is typically paid within 30 days of it becoming payable (i.e., on your last working day). It's paid as a lump sum, along with your final settlement — full and final settlement cheque or bank transfer. Some employers pay separately as a gratuity cheque.
Is gratuity deducted from salary?
No. Gratuity is entirely employer-funded. It's not deducted from your salary or CTC (in the sense of a direct reduction), though it's typically part of the 'CTC' for accounting purposes. You never see it in your monthly pay slip.
What happens to gratuity if the employer closes?
If the employer closes down or is liquidated, employees still have a claim on gratuity. The employer must pay it from the assets, and there are provisions under the Act for priority of payment. However, in practice, recovering gratuity from a bankrupt employer can be difficult.
Reviewed by AutoWealthLab Editorial Team
This calculator and its accompanying guide are maintained by the AutoWealthLab editorial team. Every formula is verified against standard financial references, and results are cross-checked with independent calculators before publishing. Our tools are updated whenever tax rules, interest rate benchmarks, or regulatory formulas change.
Last reviewed: October 2026 · Methodology: Standard amortization and compound interest models · Learn more about our testing process