Gratuity Calculator

The Gratuity Calculator estimates the lump-sum amount an employee is entitled to receive from their employer as a token of appreciation for long service, based on their last drawn salary and total years of continuous service, as governed by the Payment of Gratuity Act, 1972.

It is useful for any employee nearing retirement, resignation, or considering a job change after several years at the same organization, and for HR teams estimating gratuity liability.

For employees covered under the Payment of Gratuity Act (most organizations with 10 or more employees), the formula is:

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

Here, "salary" means Basic Pay + Dearness Allowance, and 26 represents the assumed number of working days in a month, with 15 days' salary paid for every completed year of service. A period of service of 6 months or more in the final year is rounded up to a full year; anything less is ignored.

Employees not covered under the Act use a slightly different formula, with a divisor of 30 instead of 26 and no 6-month rounding rule. Gratuity received is tax-exempt up to a ceiling of ₹20,00,000 for private-sector employees (₹25,00,000 for government employees) under Section 10(10)(ii); any amount above the ceiling is added to your taxable salary income.

Vikram worked at a private company covered under the Payment of Gratuity Act for 8 years and 6 months, with a last drawn monthly salary (Basic + DA) of ₹60,000.

• Since 6 months counts as a full year, his years of service round up to 9 years.
• Gratuity = (₹60,000 × 15 × 9) / 26 = ₹3,11,538

Since ₹3,11,538 is well under the ₹20,00,000 tax-exemption ceiling, the entire amount is tax-free for Vikram.

• Retirement/Resignation Planning: Know your expected gratuity payout before you resign, retire, or negotiate a settlement.
• Tax Clarity: Instantly see how much of your gratuity is tax-exempt versus taxable, especially useful for very senior employees with large payouts.
• Act vs Non-Act Comparison: Toggle between the two formulas to see how coverage under the Payment of Gratuity Act changes your payout.

Practical Tips:

• Gratuity is generally payable only after 5 years of continuous service, except in cases of death or disability, where the 5-year rule doesn't apply.
• The ₹20 lakh tax-exemption ceiling is a lifetime limit across all employers, not a per-job limit — track how much exemption you've already used if you've received gratuity before.
• "Continuous service" has specific legal definitions around notice periods, strikes, and leave — if you're near the 5-year mark, confirm your exact eligibility with HR before resigning.

Sources & References

• Payment of Gratuity Act, 1972 (as amended)
• Income Tax Act, 1961 — Section 10(10)(ii) Gratuity Exemption