Gratuity Calculator (India)

Gratuity is a lump-sum payment your employer gives you when you leave a job after at least 5 years of continuous service, as a reward for your time there. It is governed by the Payment of Gratuity Act, 1972, which brought a centuries-old custom — employers giving loyal workers a parting gift — into statutory law with a fixed formula. Today it is not a courtesy but an employee entitlement: a legally defined benefit that appears in most CTC break-ups as a small annual accrual.

The formula

For employees covered by the Act:

Gratuity = Last drawn (basic + DA) × Completed years × 15 / 26

• 15 days of wages for each completed year of service
• The daily wage is the monthly wage divided by 26 (working days)

The numbers encode an old convention: half a month's salary for every year served, with the month taken as 26 working days. For employees not covered by the Act (some private employers who still choose to pay gratuity), a common alternate formula uses 15/30 instead of 15/26.

Worked example

Last drawn basic + DA = ₹40,000, completed 12 years, covered by the Act:

• Gratuity = 40,000 × 12 × 15 / 26 = ₹2,76,923

If the same employer used the 15/30 convention, the figure would shrink to ₹2,40,000 — a difference of nearly ₹37,000, which is why it matters whether your company applies the statutory formula or a looser one.

Eligibility rules

• You must complete 5 continuous years of service (5 years 240 days for underground mines).
• "Continuous service" counts your entire period with the employer; resignations, retirements and most terminations all qualify.
• Gratuity is payable on resignation, retirement, retrenchment, and on death or disability — in the last two cases, no 5-year minimum applies, and on death the amount goes to the nominee.
• The Act's ₹20 lakh cap was revisited by the 2024 amendments, and large gratuities may no longer be capped for many employees — check current law for your case.
• The Act applies to factories, mines, plantations and most shops and establishments with ten or more employees. Smaller employers may still grant gratuity contractually.

How the years are counted

The statutory formula counts completed years, but with a rounding rule: period of service in excess of six months in the final year is reckoned as a complete year of service. So 11 years 7 months counts as 12 years. This calculator takes your completed years as an integer input — if you are close to a threshold, check which side of the rounding rule you fall on.

Tax treatment

Under Section 10(10) of the Income-tax Act, gratuity received by government employees is fully exempt. For non-government employees covered by the Act, the exemption is the lowest of: the actual amount, the ₹20 lakh statutory ceiling (where it still applies), or the amount computed by the 15/26 formula. Anything above the exempt amount is taxable in the year you receive it. Because gratuity accrues invisibly in your CTC, using a salary calculator alongside this one shows how much of your "package" is really this deferred benefit — roughly 4.81% of basic each year.