Gratuity Calculator – Calculate Your Gratuity Amount
🏆 What is Gratuity?
Gratuity is a lump sum benefit paid by an employer to an employee as a token of appreciation for services rendered, typically paid upon retirement, resignation (after 5 years), death, or disability. It is governed by the Payment of Gratuity Act, 1972 in India.
📈 Gratuity Calculation Formula
Gratuity = (Last Drawn Basic Salary × 15 × Years of Service) / 26
For employees NOT covered:
Gratuity = (Last Drawn Basic Salary × 15 × Years of Service) / 30
The “26” represents working days in a month (excluding 4 Sundays), while “15” represents 15 days of salary for each year of service. Only Basic + Dearness Allowance (DA) is considered, not the full gross salary.
✅ Eligibility Criteria
- Minimum 5 years of continuous service (except death/disability)
- Applicable to establishments with 10 or more employees
- Applies on retirement, resignation, death, disability, or retrenchment
- For death/disability, the 5-year rule is waived entirely
💰 Tax on Gratuity
| Employee Type | Tax Exemption Limit |
|---|---|
| Government Employees | Fully exempt (no limit) |
| Private Sector (covered under Act) | Up to ₹20,00,000 |
| Private Sector (not covered) | Least of: actual gratuity, ₹20L, or half-month salary per year |
📝 Worked Example
Basic Salary: ₹50,000/month, Years of Service: 12 years, Covered under Act
Gratuity = (50,000 × 15 × 12) / 26 = ₹3,46,154
Since this is below ₹20 lakh, the entire amount is tax-free.
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⚖ Gratuity vs Provident Fund — Key Differences
| Feature | Gratuity | Provident Fund (PF) |
|---|---|---|
| Who Contributes | Employer only | Both employee and employer |
| Eligibility | Minimum 5 years service | From day 1 of employment |
| Calculation Base | Basic + DA × years of service | 12% of basic monthly (each side) |
| Withdrawal | Lump sum on exit (after 5yr) | Can be withdrawn/transferred anytime |
| Tax Treatment | Tax-free up to ₹20L | Tax-free if withdrawn after 5 years continuous service |
📋 Gratuity Nomination and Death Cases
Every employee covered under the Gratuity Act should file a nomination (Form F) designating who receives their gratuity in case of death before retirement.
- With valid nomination: Gratuity paid directly to nominated family member(s) without requiring succession certificate
- Without nomination: Legal heirs must obtain succession certificate, delaying payment significantly
- Death before 5 years: The 5-year minimum service rule is waived entirely; gratuity is calculated and paid based on actual service period
- Multiple nominees: Employee can specify percentage split among multiple family members
Gratuity Forfeiture Conditions
Gratuity can be wholly or partially forfeited if the employee is terminated for proven misconduct involving moral turpitude, or for causing loss/damage to employer property through willful negligence — though this requires due process and is relatively rare.
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💼 Employer Obligations for Gratuity
Under the Payment of Gratuity Act, employers with 10+ employees must maintain adequate provisions or insurance to cover gratuity liability, ensuring funds are available when employees become eligible.
| Employer Option | Description |
|---|---|
| Gratuity Trust | Separate trust fund managed to cover future gratuity payouts |
| Group Gratuity Insurance | Insurance policy (LIC or private insurer) covering gratuity liability |
| Pay-as-you-go | Direct payment from company funds when due (riskier for large companies) |