Gratuity Calculator (India)

What is Gratuity?

Gratuity is a lump sum amount paid by an employer to an employee as a token of appreciation for the services rendered by the employee towards the organization. It is typically paid at the time of retirement, resignation, death, or disablement, provided the employee has completed a minimum qualifying period of service.

In India, gratuity payment is governed by the Payment of Gratuity Act, 1972, which applies to establishments employing 10 or more persons.

Gratuity Calculation Formula

For employees covered under the Gratuity Act, the formula used is:

Gratuity = (Last Drawn Salary × 15 × Number of Years in Service) / 26

Where:

• Last Drawn Salary: Includes Basic Salary + Dearness Allowance (DA).
• 15: Represents 15 days' salary.
• Number of Years in Service: Total completed years. Any period over 6 months is rounded up to the next year for calculation.
• 26: Represents the number of working days in a month.

Key Points

• Eligibility: Generally requires completion of 5 years of continuous service with the same employer.
• Statutory Limit: The maximum gratuity payable under the Act is currently capped at ₹20 Lakh (this limit may be revised by the government).
• Taxation: Gratuity received by government employees is fully exempt from tax. For employees covered under the Gratuity Act, the gratuity is tax-exempt up to the least of: (a) Statutory limit (₹20 Lakh), (b) Actual gratuity received, or (c) Gratuity calculated using the formula.

Disclaimer: This calculator provides an estimate based on the standard formula under the Payment of Gratuity Act, 1972. Companies not covered under the Act may have different gratuity policies. Tax rules and statutory limits are subject to change. Consult HR or a financial advisor for specific details related to your employment and for tax implications.