Gratuity Calculator

How This Gratuity Calculator Works

The Gratuity Calculator can estimate the lump-sum payout you are entitled to under the Payment of Gratuity Act, 1972. Enter your last drawn basic salary plus Dearness Allowance (DA) per month and your total completed years of service — the result shows your gratuity amount instantly, along with whether it falls within the ₹20 lakh tax-free limit.

The results of this calculator are based on the standard formula under the Payment of Gratuity Act and are accurate for employees in private sector establishments with 10 or more employees. However, the formula may differ for employees not covered under the Act, and government employees are subject to separate service rules that typically provide different payouts. For the most accurate figure specific to your situation, verify your eligibility and applicable formula with your employer's HR department.

The result helps you plan your finances — whether you are evaluating a job change, planning for retirement, or assessing what portion of your CTC is committed as gratuity. To understand your full take-home picture, also see our Salary In-Hand Calculator.

Gratuity Calculation Formula

For employees covered under the Payment of Gratuity Act, 1972, the gratuity amount is calculated using the following standard formula:

Where:

• Last Drawn Salary = Basic Salary + Dearness Allowance (DA). Other components such as HRA, conveyance, special allowances, and bonuses are not included.
• 15 = The number of days' wages payable for each completed year of service, as mandated by the Act.
• 26 = The number of working days in a month (30 calendar days minus 4 Sundays), used to convert monthly salary into a daily wage equivalent.

The calculator applies this formula automatically — it is shown here so you understand how the result is derived.

Rounding rule: If the employee has completed more than 6 months in the last year, it is rounded up to the next full year. For example, 10 years and 7 months of service is treated as 11 years for gratuity calculation purposes.

Example Calculation

Tax Exemption: Under current income tax rules, gratuity received by employees covered under the Payment of Gratuity Act is exempt from income tax up to a maximum of ₹20 lakh. In this example, the entire gratuity amount of ₹4,15,385 falls within the exemption limit and is therefore fully tax-free.

What Your Gratuity Amount Means

The gratuity amount you calculate has different implications depending on where it falls relative to the ₹20 lakh statutory cap and tax exemption limit.

• Below ₹5 lakh — Typically reflects a basic salary below ₹25,000/month or a tenure under 8 years. The entire amount is tax-free and well within the exemption limit.
• ₹5 lakh–₹10 lakh — Common for mid-career professionals earning ₹30,000–₹50,000/month in basic salary with 10–15 years of service. Fully tax-exempt. This is the most typical gratuity range in India's organised sector.
• ₹10 lakh–₹20 lakh — Reflects a senior professional with a high basic salary or a long tenure of 20+ years. Still fully exempt from income tax. At this level, gratuity forms a meaningful component of your retirement corpus.
• Above ₹20 lakh — Only the first ₹20 lakh is tax-exempt. The amount in excess is taxable as income from salary in the year of receipt. Consider timing your retirement or resignation to align with a low-income year to minimise the tax impact.

The table below shows estimated gratuity at common salary and tenure combinations, to give you a benchmark for your own result:

*Capped at ₹20 lakh — the statutory maximum under the Payment of Gratuity Act. Employers may voluntarily pay more, but the tax exemption applies only up to ₹20 lakh. For personalised advice on gratuity taxation, consult a chartered accountant.

Gratuity Eligibility and Rules

The Payment of Gratuity Act lays out specific eligibility criteria and rules that determine when and how gratuity is payable. Understanding these rules is essential for both employees and employers.

• Minimum Service: An employee must complete at least 5 years of continuous service with the same employer. In certain judicial interpretations, 4 years and 240 days of service has been considered sufficient to qualify.
• Applicable Establishments: The Act applies to every factory, mine, oilfield, plantation, port, and railway company, as well as every shop or establishment with 10 or more employees.
• Payable Events: Gratuity is payable upon resignation, retirement, superannuation, or in the event of death or disability. The 5-year minimum service rule is waived in cases of death or disability.
• Tax Exemption Limit: The maximum tax-exempt gratuity for private sector employees covered under the Act is ₹20 lakh. Any amount received above this limit is taxable as income from salary.
• Employees Not Covered Under the Act: For employees not covered under the Payment of Gratuity Act, the employer may calculate gratuity differently. Some companies include gratuity as part of CTC at approximately 4.81% of basic salary, using a CTC-based gratuity formula.

The 4 Years and 240 Days Rule: What to Know Before You Resign

The Payment of Gratuity Act sets 5 years as the minimum service period. But Section 2A of the Act defines "continuous service" in a way that courts have interpreted more generously. If you have worked at least 240 days in the fifth year, several High Court judgments (including the Madras HC and Punjab & Haryana HC) have held that you qualify for gratuity — even though you have not completed a full 60 months.

How 240 days is counted: weekends, public holidays, and paid leave are included. Only unpaid absence counts against you. For most employees on a 5-day week, 240 working days in year five is reached well before the end of October — meaning someone who joined in April 2020 would cross the threshold around February 2025 at the latest, five months before the formal fifth anniversary.

The financial stakes are real. For an employee earning ₹60,000/month in basic salary, gratuity after 4 complete years is ₹1,38,462. The same employee who stays 3 more months (crossing 240 days in year five) earns ₹1,73,077 — an additional ₹34,615 for roughly 90 days. At a ₹1,00,000 basic, the difference is ₹57,692.

This is not a loophole. It is the intent of the Act. The employer cannot legally refuse gratuity on the grounds of "not completing five full years" if you meet the 240-day threshold for that year. If your HR denies the payment, you can file a claim with the Controlling Authority (typically the Labour Commissioner in your district) under Section 7 of the Act.

Before resigning in years four or five, use this calculator to compare your gratuity at your current tenure versus what you would receive if you stayed two or three months longer. The difference is often worth it.

Why Your Gratuity Is Smaller Than Expected

The gratuity formula uses only basic salary plus DA. It ignores HRA, special allowance, food coupons, and every other component that makes up modern CTC packages. This matters because many Indian companies deliberately keep the basic salary low as a proportion of total CTC.

The reason is money. Provident Fund contributions are calculated on basic salary: 12% of basic goes from the employee, and another 12% from the employer. Gratuity is also basic-driven. So a company that structures your ₹15 lakh CTC with 25% basic pays less PF, less gratuity, and saves significantly on employee costs over time — without changing what they call your CTC.

The cost to you is specific and calculable. Take a ₹15 lakh CTC with 10 years of service:

The employee at 25% basic receives ₹1,80,174 less gratuity over 10 years than the employee at 50% basic — from the same CTC. The difference grows with tenure.

This is worth checking in any salary negotiation. If an employer offers you a ₹20 lakh package with 20% basic, ask what the basic percentage is and what the gratuity impact is over 5 and 10 years. Use the Salary In-Hand Calculator alongside this calculator to see the full picture of what a salary structure actually pays you. For context on how much your employer contributes to PF separately, also see the Income Tax Calculator which breaks out PF deductions.

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