Gratuity Calculator

What is Gratuity?

Gratuity is a lump sum benefit paid by an employer to an employee as a token of gratitude for the services rendered. It is governed by the Payment of Gratuity Act, 1972.

It serves as a critical retirement benefit, similar to Provident Fund (PF). However, unlike PF where you contribute monthly, Gratuity is paid entirely by the employer.

The "5-Year Rule" for Eligibility

This is the most important condition. To be eligible for gratuity, an employee must complete 5 continuous years of service with the same organization.

How Gratuity is Calculated (The Formula)

The math depends on whether your organization is covered under the Gratuity Act (most private companies with >10 employees are covered).

Scenario A: Covered under Gratuity Act (Standard)

The formula considers 26 working days in a month. You get 15 days of salary for every completed year of service.
Formula: (15 / 26) * Last Drawn Salary * Years of Service
Note: Any service above 6 months is rounded up to the next year. E.g., 5 years 7 months = 6 years.

Scenario B: Not Covered under Gratuity Act

For employees not covered by the Act, the calculation assumes 30 days in a month.
Formula: (15 / 30) * Last Drawn Salary * Years of Service
Note: No rounding up. 5 years 11 months is counted as just 5 years.

Tax Exemptions on Gratuity

The Income Tax treatment of gratuity depends on the type of employee:

• Government Employees: Gratuity is fully tax-free.
• Private Employees (Covered by Act): Tax-free up to the least of the following:
  1. Actual Gratuity received.
  2. ₹20 Lakhs (Limit hiked from ₹10L in 2019).
  3. 15 days salary based on last drawn salary for each year of service.

Any amount exceeding ₹20 Lakhs is taxable as per your income tax slab.