Gratuity Calculator

What gratuity is and why it exists

Gratuity is a lump-sum reward for long service, paid by your employer when you leave after several years. It is governed by the Payment of Gratuity Act, 1972, which applies to factories, mines, shops and establishments employing 10 or more people. The idea is simple: the longer you stay, the larger the thank-you when you eventually move on, retire or in the unfortunate event of death or disablement.

Crucially, gratuity costs you nothing directly — it is funded entirely by the employer. Many companies show it as a line inside your CTC, but the statutory entitlement is calculated by law, not by what appears on your offer letter.

How the amount is calculated

For covered establishments the formula is:

• Gratuity = (15 ÷ 26) × last drawn monthly salary × years of service

Here the month is treated as 26 working days and you earn 15 days’ wages for each completed year. The salary means basic pay plus dearness allowance only — HRA, bonuses and other allowances are excluded. A part-year is rounded: more than 6 months in the final year counts as a full year, while 6 months or less is dropped.

So an employee earning ₹60,000 basic-plus-DA who completes 10 years receives roughly (15 ÷ 26) × 60,000 × 10, or about ₹3.46 lakh.

Eligibility and the tax angle

You generally need 5 years of continuous service to qualify, though this condition is waived if service ends due to death or disablement. Gratuity is tax-free up to ₹20 lakh for private-sector employees covered by the Act across your entire career; anything above that ceiling is taxable as salary.

• Payable within 30 days of becoming due, with interest if delayed.
• Forfeited only for dismissal on proven misconduct causing damage.
• The ₹20 lakh exemption is a lifetime limit, not a per-employer one.

Because eligibility hinges on that five-year threshold and the final-year rounding rule, planning your exit date thoughtfully can mean the difference between forfeiting the benefit entirely and picking up an extra qualifying year.