Gratuity Calculator

What Is Gratuity

Gratuity is a lump-sum reward paid by an employer to an employee for long and continuous service. It is a statutory benefit under the Payment of Gratuity Act, 1972, applicable to establishments with 10 or more employees, and is paid when you resign, retire, or in certain other cases of separation.

The key condition is eligibility after 5 years of continuous service with the same employer. Once you cross this threshold, you become entitled to gratuity calculated on your last drawn salary and total years served.

A gratuity calculator helps you estimate this amount in advance so you can factor it into your retirement or job-change planning. The figure it produces is an estimate; the exact payout depends on your final salary and how your service period is rounded.

The Gratuity Formula

For employees covered under the Payment of Gratuity Act, gratuity is calculated using a standard formula:

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

Here:

• 15 represents 15 days of wages for each completed year of service.
• 26 is the assumed number of working days in a month (excluding Sundays).
• Last Drawn Salary means your most recent monthly basic salary plus dearness allowance (DA).
• Years of Service is your total completed years. A part-year of more than 6 months is rounded up to a full year; 6 months or less is rounded down.

For example, 7 years and 8 months is treated as 8 years, while 7 years and 4 months is treated as 7 years.

A Worked Example

Suppose your last drawn basic salary plus DA is ₹40,000 per month and you have worked for 10 years and 7 months. Since 7 months is more than 6, the service is rounded up to 11 years.

Applying the formula:

Last drawn salary (basic + DA)	₹40,000
Years of service (rounded)	11
Calculation	(15 ÷ 26) × 40,000 × 11
Step 1: 15 ÷ 26	0.5769
Step 2: × ₹40,000	₹23,077
Step 3: × 11 years	≈ ₹2,53,846

So you would be entitled to approximately ₹2,53,846 as gratuity. Note that gratuity is subject to a maximum statutory ceiling, and tax exemption on gratuity is also capped; both the ceiling and exemption limits can be revised, so verify the current limits before relying on the figure.

Important Points to Remember

A few rules and exceptions are worth keeping in mind:

• 5-year rule: You generally need at least 5 years of continuous service to be eligible, except in cases of death or disablement, where this condition is waived.
• Salary definition: Only basic salary and dearness allowance are used; allowances like HRA, bonuses and overtime are excluded.
• Maximum limit: The total gratuity payable is capped at a statutory ceiling set by the government.
• Tax treatment: Gratuity is tax-exempt up to a specified limit; amounts beyond that may be taxable depending on your category of employment.
• Non-covered employers: For establishments not covered by the Act, a different formula using 15 days and a 30-day month may apply.

Because ceilings, exemption limits and rounding conventions can change, treat the calculator output as an estimate and confirm the latest rules before making financial plans.