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Your Gratuity Amount
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Gratuity Calculation Formula
Gratuity is a lump sum an employer pays you as a thank-you for long service. The amount is fixed by law, not by negotiation, so anyone can verify it with a simple formula.
If your employer is not covered by the Act
Smaller organisations with fewer than 10 employees may fall outside the Payment of Gratuity Act. They commonly use 30 days instead of 26, which produces a slightly smaller amount:
Rounding rule: Under the Act, service of more than 6 months in the final year is rounded up to a full year. So 10 years 7 months counts as 11 years, while 10 years 4 months counts as 10 years.
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Worked Example: Gratuity on a Rs 50,000 Salary
Suppose your last drawn basic plus DA is ₹50,000 per month and you have completed 10 years of continuous service with a company covered by the Act.
| Step | Calculation | Result |
|---|---|---|
| Last drawn salary | Basic + DA | ₹50,000 |
| Years of service | Completed years | 10 |
| Apply formula | 50,000 × 15 × 10 ÷ 26 | ₹2,88,462 |
| Tax exemption | Below ₹20,00,000 limit | Fully tax free |
Gratuity at different salary levels
| Last Drawn Salary | 5 Years | 10 Years | 15 Years |
|---|---|---|---|
| ₹25,000 | ₹72,115 | ₹1,44,231 | ₹2,16,346 |
| ₹30,000 | ₹86,538 | ₹1,73,077 | ₹2,59,615 |
| ₹50,000 | ₹1,44,231 | ₹2,88,462 | ₹4,32,692 |
| ₹80,000 | ₹2,30,769 | ₹4,61,538 | ₹6,92,308 |
These figures assume the 15/26 formula and exclude any additional amount your employer may pay voluntarily above the statutory minimum.
Who Is Eligible for Gratuity?
The Payment of Gratuity Act, 1972 applies to factories, mines, shops and establishments employing 10 or more people. You qualify when:
- You have completed 5 years of continuous service with the same employer.
- You leave on resignation, retirement, superannuation, or layoff.
- Service ends due to death or disablement — here the 5-year rule does not apply and the nominee receives the amount.
- You are on a fixed-term contract — pro-rata gratuity applies after one year under the Social Security Code provisions.
Gratuity and income tax
Gratuity received by private sector employees covered by the Act is exempt from income tax up to a lifetime limit of ₹20 lakh. The exempt amount is the lowest of: the actual gratuity received, the amount from the statutory formula, or ₹20 lakh. Anything beyond that is added to your salary income and taxed at your slab rate. Government employees get full exemption with no cap.
Note: This calculator gives you the statutory figure for planning purposes. Your actual payout depends on your salary structure, company policy and how your employer counts continuous service. For a binding answer, confirm with your HR department or a qualified tax advisor.
Frequently Asked Questions
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