Gratuity Calculator

Formula For Calculating Gratuity

Gratuity in India is calculated using the formula: "(Last Drawn Salary × 15 × Years) ÷ 26" under the Payment of Gratuity Act, 1972.

Note: under the Payment of Gratuity Act, 1972. part of service beyond 6 months in the last year is counted as a full year. The calculator will show years considered after rounding and which formula was applied.

For employees not covered under the Act:

Gratuity = (Last Drawn Salary × 15 × Years of Service) ÷ 30

Where:

Example For Calculating Gratuity

Example 1: If you worked for 15 years with a last drawn salary of ₹30,000, the gratuity would be:

• Gratuity = (15 * 30,000 * 15) / 26 = ₹2,59,615
• The maximum gratuity amount is ₹20 lakh; any excess is treated as ex-gratia, and for Central Govt Employees maximum gratuity amount is ₹25 lakh.
• If tenure in the final year exceeds six months, it is rounded up.

Example 2 : With a salary of ₹30,000 and 7 years of service (not covered under the Gratuity Act), the gratuity would be:

• Gratuity = (15 * 30,000 * 7) / 30 = ₹1,05,000.

Example 3: If you worked for 10 years and 7 months with a last drawn salary of ₹75,000, the gratuity would be:

• Gratuity = (15 * 75,000 * 11) / 26 = ₹4,76,923
• Since the tenure exceeds 6 months, it is rounded up and considered as 11 years.
  If the tenure was 10 years and 5 months, it would be considered as 10 years only.

Example 4: If you worked for 4 years and 8 months with a last drawn salary of ₹40,000, gratuity eligibility would be:

Gratuity is generally payable only after 5 years of continuous service.
However, in some cases, 4 years and 240 days (approx. 4 years 8 months) may be considered eligible depending on actual days worked and employer policy.

If eligible, then:

• Gratuity = (15 * 40,000 * 5) / 26 = ₹1,15,385
• If not eligible, gratuity may not be payable.

How To Use the Gratuity Calculator?

Follow these steps and calculate your gratuity using the Gratuity Calculator:

• Enter the basic salary and the dearness allowance if applicable
• Enter the number of years of service with the company.

The gratuity calculator will calculate the total gratuity amount payable to you.

What is Covered & Not Covered Under the Payment of Gratuity Act?

Understanding whether your employer is covered under the Payment of Gratuity Act, 1972, is important because it directly affects how your gratuity is calculated.

Key takeaway: Employees covered by the Act generally receive a higher gratuity amount under the 26-day calculation method.

Gratuity Rules in India

Who is Eligible for Gratuity in India?

You are eligible for gratuity if you meet these below conditions:

• You have completed at least 5 years of continuous service with the employer (for resignation, retirement, or superannuation).  
• The 5-year rule is waived in case of death or disablement due to accident or disease.  
• New Rule (Labour Code 2025): Fixed-term employees are eligible for pro-rata gratuity after just 1 year of continuous service.  
• The organization has 10 or more employees.

Gratuity is payable on retirement, resignation, death, disablement, or termination (except for misconduct in some cases).

Benefits of the Gratuity Calculator

• The Gratuity Calculator is an easy-to-use tool that estimates gratuity based on basic salary and years of service.
• It provides quick gratuity estimates after five or more years of continuous service.
• The calculator helps plan finances by offering insights on how to invest the gratuity for maximum return.
• Calculates gratuity instantly using official formula & Applies rounding rules (>6 months) automatically.

Taxation Rules for Gratuity

The tax treatment of the gratuity amount depends on the type of employee who receives the gratuity.

• The amount of gratuity received by any government employee (whether central/state/local authority) is exempt from the income tax.
• Any other eligible private employee whose employer is covered under the Payment of Gratuity Act. Here, the least of the following three amounts will be exempt from income tax.
  • Rs 20 lakh.
  • The actual amount of gratuity received.
  • The eligible gratuity.

For example, your employer had paid you a gratuity of Rs 12 lakh. As per the gratuity calculation in the earlier example, you are eligible for a gratuity amount of Rs 2,59,615. The government has set the upper tax-free limit at Rs 20 lakh. The lowest of the three figures is Rs 2,59,615, which is exempt from tax. You must pay tax on the remaining amount of Rs 9,40,385 as per your income tax slab.

Do note that in your entire working life, the maximum tax-exempt gratuity amount you may claim cannot go beyond Rs 20 lakh.

Gratuity Amount Investment Options

Investing the gratuity amount involves considering various options to address financial goals, based on risk appetite and investment horizon. Here’s the breakdown of few investment options to consider when it comes to investing the gratuity amount:

Diversifying investments across various asset classes can help manage risk. In addition, take into account factors such as liquidity needs, taxation, and inflation when making investment decisions. Also, regularly review and adjust the investment portfolio as per the financial situation and changes in goals.