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🎁 Gratuity 🆓 Free 🇮🇳 Payment of Gratuity Act

🎁 Gratuity Calculator

Enter your last drawn Basic + DA salary and years of service to instantly calculate your gratuity under the Payment of Gratuity Act 1972. Compares covered and non-covered formulas, checks your ₹20 lakh tax exemption, flags eligibility, and shows year-wise gratuity accrual from 5 to 35 years.

🎁 Gratuity Calculator

Employee Type

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Gratuity Amount

Year-wise Gratuity Accrual

How your gratuity builds up year by year (based on current salary - actual will vary as salary changes).

YearBasic+DA (mo)Gratuity at this yrCumulativeGrowth

⚖️ Covered vs Non-Covered Comparison

Compare gratuity under Act (covered) vs employer discretion (non-covered) for the same employee.

Gratuity Calculation - How It Works

Formula - Covered Employees (Payment of Gratuity Act 1972)

Gratuity = (Basic + DA) × Years of Service × 15/26 Where: 15 = 15 days pay per year of service 26 = working days in a month (26 days) Years = completed years (6+ months in last year counts as 1 full year) Maximum Gratuity (statutory cap) = ₹20,00,000 Example: Basic+DA ₹50,000/mo, 8 years 7 months Completed years = 9 (7 months counts as full year) Gratuity = 50,000 × 9 × 15/26 = 50,000 × 9 × 0.5769 = ₹2,59,615

Formula - Non-Covered Employees

Gratuity = (Basic + DA) × Years of Service × 15/30 Where: 15 = 15 days pay per year 30 = calendar days in a month (30 days) Years = completed years (no rounding up for partial last year) Example: Basic+DA ₹50,000, 8 years 7 months Completed years = 8 (partial year NOT counted) Gratuity = 50,000 × 8 × 15/30 = 50,000 × 8 × 0.50 = ₹2,00,000

Eligibility & Key Rules

Minimum service: 5 continuous years (except death/disability) Death/disability: gratuity payable regardless of years Resignation: minimum 5 years required Retirement: minimum 5 years required Organisation threshold: 10+ employees (once crossed, Act applies even if headcount later falls) Maximum statutory gratuity: ₹20,00,000 Employers can pay more voluntarily Tax exemption (Sec 10(10)): Government employees: entire amount tax-free Private sector (covered): exempt up to ₹20,00,000 Private sector (non-covered): exempt up to ₹20,00,000 Amount above ₹20,00,000 is taxable

Frequently Asked Questions

Gratuity is a one-time payment from employer to employee as recognition for long service, mandatory under the Payment of Gratuity Act 1972 for organisations with 10+ employees. Eligibility: minimum 5 continuous years of service for resignation, retirement, or termination other than death or disability. For death or permanent disability: gratuity is payable regardless of how many years have been served. Nominees/heirs receive it on behalf of deceased employees.
Two formulas based on whether the Payment of Gratuity Act applies: (1) Covered employees (organisations with 10+ employees): Gratuity = (Basic+DA × 15 × Years of Service) ÷ 26. (2) Non-covered employees: Gratuity = (Basic+DA × 15 × Years of Service) ÷ 30. 'Basic+DA' means Basic Salary + Dearness Allowance only - HRA, transport, special allowances are excluded. Example: Basic+DA ₹40,000, 10 years, covered: (40,000 × 15 × 10) ÷ 26 = ₹2,30,769.
Covered employees work at organisations with 10 or more employees and fall under the Payment of Gratuity Act 1972. They use the ÷26 formula, partial years (6+ months) round up to a full year, and the statutory maximum is ₹20 lakh. Non-covered employees (smaller organisations or contractual workers outside the Act) use the ÷30 formula, partial years are not rounded up, and there's no statutory cap or legal obligation. Covered employees receive more gratuity for the same salary and service - the ÷26 divisor vs ÷30 results in about 15% higher gratuity.
The 5-year minimum is for continuous service. Courts have generally held that completing 4 years and 240 days in the 5th year qualifies - this is because 240 days is treated as 6+ months, making the partial year count as a full year. Notice period served within the organisation (not garden leave) typically counts toward total service. If your employer disputes this and you believe you qualify, file a claim with the Controlling Authority (Assistant Labour Commissioner) under the Act. The burden of proof for service continuity generally lies with the employee.
Statutory maximum: ₹20,00,000 (₹20 lakh). If your calculated gratuity exceeds ₹20 lakh, you receive ₹20 lakh as mandatory gratuity - employer may voluntarily pay more. Tax treatment: Government employees - fully exempt, no limit. Private sector (Act-covered) - exempt up to ₹20 lakh under Section 10(10). Private sector (non-covered) - exempt up to the least of: actual gratuity, ₹20 lakh, or half-month salary per year of service. Important: ₹20 lakh is a lifetime cumulative limit across all employers, not per job.
No - the Payment of Gratuity Act requires a minimum of 5 continuous years for gratuity on resignation. Exceptions: death or permanent disability (payable from day one). Some employers voluntarily pay ex-gratia (not statutory gratuity) to employees leaving before 5 years - this is goodwill, not a legal right. If you are close to the 5-year mark (in the fifth year), courts have accepted 4 years + 240 days as qualifying. Termination for misconduct can result in partial or full forfeiture of gratuity.
Contractual workers working continuously through the same organisation for 5+ years may qualify for gratuity even if technically hired on a contract. The key legal tests are: continuous service and employer-employee relationship. Courts have held in favour of such workers in many cases - particularly when the organisation exercises control over the work, provides tools, and the arrangement is de facto permanent employment. Gig workers classified as genuine independent contractors are generally not covered. If in doubt about your status, consult a labour law professional.
Under the Payment of Gratuity Act, gratuity must be paid within 30 days of becoming payable. If delayed beyond 30 days, simple interest is owed on the outstanding amount. Steps if unpaid: (1) File a written application with the employer in Form I. (2) If rejected or unpaid, file a claim before the Controlling Authority (typically the Assistant Labour Commissioner of your district) in Form N. (3) If the Controlling Authority rules in your favour and the employer still does not pay, file a criminal complaint - non-payment is a criminal offence punishable by up to 2 years imprisonment and/or fine.

Key Numbers

Minimum service5 years
Covered formula×15/26
Non-covered formula×15/30
Max statutory₹20 lakh
Tax exempt limit₹20 lakh
Org threshold10 employees

⏱️ Service Rounding Rules

Covered - 7+ monthsRounds to 1 yr
Covered - 6 monthsRounds to 1 yr
Covered - 5 monthsNot counted
Non-coveredNo rounding

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Gratuity Calculator India - Payment of Gratuity Act 1972 Formula Explained

Gratuity is one of the most significant retirement benefits for Indian employees, yet many people don't know their exact entitlement until they're about to leave a job. Understanding the formula, the eligibility rules, the difference between covered and non-covered employee calculations, and the tax exemption limits helps you plan better and ensures you receive what you're entitled to.

Quick calculation: Basic + DA = ₹45,000/month. Service = 12 years. Covered employee: (45,000 × 15 × 12) ÷ 26 = ₹3,11,538. Non-covered employee: (45,000 × 15 × 12) ÷ 30 = ₹2,70,000. Tax exemption: Both are well below ₹20 lakh - fully exempt under Section 10(10).

The Two Gratuity Formulas - Covered vs Non-Covered Employees

The Payment of Gratuity Act 1972 applies to establishments with 10 or more employees. Employees working at such organisations are "covered" and benefit from the more generous formula using 26 as the divisor (representing working days in a month). Employees at smaller organisations or those outside the Act's scope use 30 (calendar days).

Covered Employees (Act Applies)

  • Formula: (Basic+DA × 15 × Years) ÷ 26
  • Applies to: organisations with 10+ employees
  • Partial year: 6+ months rounds up to a full year
  • Statutory maximum: ₹20 lakh
  • Employer cannot pay less than this formula
  • Example: ₹40,000 × 15 × 10 ÷ 26 = ₹2,30,769

Non-Covered Employees (Act Does Not Apply)

  • Formula: (Basic+DA × 15 × Years) ÷ 30
  • Applies to: organisations with fewer than 10 employees
  • Partial year: counted only as completed full years
  • No statutory maximum - employer determines
  • No legal obligation to pay (but many do voluntarily)
  • Example: ₹40,000 × 15 × 10 ÷ 30 = ₹2,00,000

What Counts as "Last Drawn Salary" for Gratuity?

This is one of the most misunderstood aspects of gratuity calculation. The Payment of Gratuity Act defines "wages" for gratuity purposes as Basic Salary + Dearness Allowance (DA) only. The following are explicitly excluded:

  • House Rent Allowance (HRA)
  • Special allowances
  • Transport/conveyance allowance
  • Medical allowance
  • Performance bonus or variable pay
  • Overtime pay
  • Any other allowances beyond Basic + DA

This means a CTC of ₹15 lakh may have a Basic + DA of only ₹5–6 lakh, resulting in a much lower gratuity than employees expect if they calculate on total CTC. Always use the Basic + DA from your salary slip, not your gross salary or CTC.

Gratuity Tax Exemption - Understanding the ₹20 Lakh Limit

Under Section 10(10) of the Income Tax Act:

  • Government employees: Entire gratuity amount is fully tax-exempt, with no upper limit.
  • Private sector employees covered by the Act: Tax-exempt up to ₹20,00,000 (₹20 lakh).
  • Private sector employees not covered by the Act: Tax-exempt up to the least of: actual gratuity received, ₹20 lakh, or half a month's salary for each year of service (using 10-month average).
  • Lifetime limit: The ₹20 lakh exemption is a cumulative lifetime limit across all employers. If you received ₹8 lakh gratuity from Employer A, only ₹12 lakh remains exempt from Employer B. Any gratuity above the remaining exempt amount is taxable at your income slab rate.

Most employees in standard service periods well below 35 years will receive gratuity below ₹20 lakh, making the question of taxation largely academic for mid-career employees. Senior executives and long-serving employees in high-salary roles may approach this threshold.

The 5-Year Rule - The Most Common Eligibility Question

The most frequent cause of gratuity disputes is the 5-year minimum service requirement. Key points:

  • Exactly 5 years required for resignation, termination (other than misconduct), and superannuation.
  • 4 years and 240 days - courts have generally accepted this as equivalent to 5 years based on the interpretation that 240 working days = 12 months × 26 working days = 312 days... actually courts count 6+ months of the fifth year as completing it. The commonly cited threshold is "5 years and 240 days" as a practical rule.
  • Death or permanent disability: Gratuity payable from day one, regardless of service duration. Nominees or legal heirs receive the entitlement.
  • Termination for misconduct: Employer may forfeit gratuity partially or fully for willful omission or negligence causing damage, or for moral turpitude offences - but not for ordinary performance dismissal.

How this calculator works, and where the numbers come from

The Gratuity Calculator applies the standard formula for this calculation to the values you enter and updates the result as you type. The calculation itself happens in your browser, and the page explains the method so you can check any result by hand.

Please note: Results are estimates based on the numbers you enter, not accounting or financial advice.

Sources and further reading

Last reviewed: by the CalcQube Editorial Team. See our editorial policy for how we build and check calculators, or report an error.