Gratuity Calculator

Gratuity Calculator: Estimate Your Payout Under the Payment of Gratuity Act

Gratuity is a lump-sum reward that an employer pays you for long and continuous service. It is governed by the Payment of Gratuity Act, 1972, which applies to factories, mines, oilfields, plantations, ports, railways, shops and establishments employing 10 or more people. This calculator is for salaried private-sector employees in India who want a quick, reliable estimate of what they will receive when they resign, retire, are superannuated, or in the unfortunate event of disablement or death. It is equally useful for HR teams verifying full-and-final settlements and for anyone planning a job change or retirement corpus.

The exact formula in words

For an employee covered by the Act, gratuity is calculated as:

• Gratuity = (15 / 26) × Last drawn monthly salary × Number of completed years of service

Here, last drawn salary means Basic pay plus Dearness Allowance (DA) only — not HRA, bonuses, commissions, or other allowances. The figure 15 represents 15 days of wages for each year of service, and 26 is the number of working days assumed in a month (a month is treated as 26 days, excluding the four Sundays). For counting service, any part of a year in excess of six months is rounded up to a full year, while a fraction of six months or less is dropped.

A fully worked example

Suppose Priya retires after working 10 years and 8 months at a company covered by the Act. Her last drawn Basic + DA is Rs. 60,000 per month.

• Step 1 — Round the service: 10 years and 8 months. Since 8 months is more than six months, it rounds up to 11 years.
• Step 2 — Apply the formula: (15 / 26) × Rs. 60,000 × 11.
• Step 3 — Compute: 15 × 60,000 × 11 = Rs. 99,00,000. Divide by 26 = Rs. 3,80,769 (approximately).

So Priya's gratuity works out to roughly Rs. 3.81 lakh. Notice how the rounding of 10 years 8 months up to 11 years increased her payout — this is why the exact months of service matter.

Eligibility and important rules

• Five-year rule: You generally need at least 5 years of continuous service with the same employer to be eligible.
• Death or disablement exception: The 5-year minimum is waived if service ends due to death or disablement caused by accident or disease. In case of death, gratuity is paid to the nominee or legal heir.
• What counts as continuous service: Authorised leave, sickness, accident, and lay-off usually count. A widely followed interpretation (Madras High Court, Mettur Beardsell) treats 240 working days in the fifth year as a completed year for a six-day work week (190 days where the establishment works a five-day week), letting some employees qualify at around 4 years 8 months.
• Employees not covered by the Act: A different formula applies — half a month's salary (15 days) for each completed year, based on the average of the last 10 months' Basic + DA, using a 30-day month instead of 26, and only fully completed years count (no rounding up).

Tax treatment (as of FY 2025-26)

Gratuity received while still in service is fully taxable, but gratuity on retirement, resignation, superannuation, or death enjoys generous exemptions under Section 10(10) of the Income-tax Act:

• Government employees: Gratuity is fully exempt from income tax.
• Private employees covered by the Act: The exempt amount is the least of these three — (a) Rs. 20 lakh (the current statutory cap), (b) the actual gratuity received, or (c) the formula amount [(15/26) × last salary × years]. Anything above the exempt figure is added to your income and taxed at your slab rate.
• The Rs. 20 lakh exemption is cumulative across your career, not per employer — exemptions claimed from earlier jobs reduce the balance available.

In Priya's case, her Rs. 3.81 lakh equals the formula amount and is well below the Rs. 20 lakh cap, so the entire sum is tax-free. Note that these thresholds are set by the government and can change; verify the current cap before finalising figures.

Common mistakes and tips

• Including the wrong salary components: Only Basic + DA count. Adding HRA or special allowances inflates the estimate.
• Forgetting to round service months: More than six months rounds up a full year; ignoring this understates your payout.
• Confusing the 26 and 30 divisors: Use 26 only if your employer is covered by the Act; otherwise use 30.
• Assuming the cap resets per job: The Rs. 20 lakh tax-free limit is a lifetime figure across all employers.
• Payment timing: Employers must pay gratuity within 30 days of it becoming due, failing which simple interest is payable.
• Tip: File Form F to nominate a beneficiary early in your service so the amount reaches the right person without dispute.

Use this calculator as a planning aid; the final figure in your settlement letter is determined by your employer as per your service records and the Act.