Gratuity Calculator

The formula depends on coverage

For employers covered by the Payment of Gratuity Act 1972, gratuity is 15 times the last drawn salary times completed years, divided by 26. The divisor of 26 exists because the Act treats a month as 26 working days, excluding Sundays. For employers not covered, the conventional formula divides by 30 instead, which produces a smaller amount for identical service.

An establishment is covered if it employed ten or more people on any day in the preceding twelve months. Once covered, it remains covered even if headcount later falls below ten.

Salary means basic plus DA only

Last drawn salary for this calculation is basic pay plus dearness allowance, and commission where it is a fixed percentage of turnover. House rent allowance, conveyance, bonus and other allowances are excluded. Using gross salary substantially overstates the entitlement and is the most common error people make when checking their own figure.

The five-year rule and its rounding

Five years of continuous service is required, waived entirely where employment ends through death or permanent disablement. Beyond that threshold, a part-year of more than six months counts as a full year while six months or less is dropped, so seven years and seven months counts as eight while seven years and four months counts as seven. Courts have also held that continuous service can include periods of authorised leave and lay-off.

Tax exemption

For non-government employees, gratuity is exempt up to 20,00,000, raised from 10,00,000 by the 2019 amendment. That ceiling is a lifetime limit across your whole career and all employers, not per employer, which surprises people changing jobs several times. Anything above it is taxable as salary income. Government employees receive full exemption.

Payment timing

The employer must pay within 30 days of it becoming due. Beyond that, simple interest is payable on the delayed amount. Gratuity cannot be withheld over ordinary disputes; forfeiture is permitted only in narrow circumstances involving proven misconduct causing damage or loss.