Gratuity Calculator — Know Your Gratuity Amount Instantly

What is Gratuity?

Gratuity is a monetary benefit given by an employer to an employee for the services rendered during the period of employment. It is governed by the Payment of Gratuity Act, 1972, which applies to establishments employing 10 or more persons. Gratuity is paid as a lump sum at the time of retirement, resignation, or superannuation, provided the employee has completed at least 5 years of continuous service.

Gratuity Calculation Formula

The gratuity formula under the Payment of Gratuity Act is the same for both government and private employees covered under the Act:

Where:

• Last Drawn Salary = Basic Salary + Dearness Allowance (DA)
• 15 = Number of days' wages (half a month)
• 26 = Working days in a month (excluding 4 Sundays)
• Years of Service = Completed years (service above 6 months is rounded up)

Gratuity Formula for Government Employees

Government employees (Central and State) use the same formula: Gratuity = (15 x Last Salary x Years of Service) / 26. However, government employees enjoy full tax exemption on the entire gratuity amount with no upper limit. The Dearness Allowance (DA) component is typically higher for government employees, resulting in a larger gratuity payout.

Gratuity Formula for Private Employees

Private sector employees covered under the Gratuity Act also use the same formula. The key difference is that the tax-free limit is capped at Rs 20,00,000. Any gratuity exceeding this amount is taxable as per the employee's income tax slab. For employees not covered under the Act, the calculation may differ — the employer can use a different formula or half-month salary calculation.

Eligibility for Gratuity

• Employee must have completed a minimum of 5 years of continuous service with the same employer
• The 5-year rule is waived in case of death or disability of the employee during service
• Some court rulings accept 4 years and 240 days of service as completing 5 years
• Applies to employees in factories, mines, oilfields, plantations, ports, railways, and establishments with 10+ employees
• Both permanent and contract employees are eligible if conditions are met

Payment of Gratuity Act, 1972

The Payment of Gratuity Act, 1972 is a social security legislation that ensures employees receive gratuity as a retirement benefit. Key provisions include:

• Applicable to establishments with 10 or more employees
• Maximum tax-exempt gratuity was increased from Rs 10 lakhs to Rs 20 lakhs in March 2019
• Gratuity must be paid within 30 days of it becoming payable
• Employer can forfeit gratuity only if the employee is terminated for moral turpitude or violent conduct
• Gratuity is payable on superannuation, retirement, resignation, death, or disability

Tax Rules on Gratuity

• Government employees: Entire gratuity is exempt from income tax under Section 10(10)(i)
• Private employees (covered under Act): Exempt up to Rs 20,00,000 under Section 10(10)(ii)
• Private employees (not covered): Least of the following is exempt — (a) Rs 20 lakhs, (b) half month salary for each completed year, (c) actual gratuity received
• Gratuity received on death is fully exempt regardless of the amount
• Tax exemption applies to the aggregate gratuity received from all employers during the lifetime

New Gratuity Rules 2026

Under the proposed new labour codes, several changes to gratuity rules are expected. The eligibility period may be reduced from 5 years to 1 year for fixed-term contract employees. The definition of "wages" for gratuity calculation may be standardized to include basic pay and DA while capping allowances at 50% of total wages. These changes, once implemented, will significantly expand gratuity coverage for India's workforce.