Gratuity is a lump-sum retirement benefit paid by an employer to an employee for their years of service. In India, it is governed by the Payment of Gratuity Act, 1972.

Gratuity Calculator

Calculate your estimated gratuity payout under the Payment of Gratuity Act 1972 for employees in India.

In this guide, we will break down the mathematical formulas, eligibility rules, and tax exemptions so you can accurately calculate your pay.

Gratuity Eligibility Rules

An employee becomes eligible for gratuity payouts under the following conditions:

  • Organization Size: The organization must have employed 10 or more people on any day of the preceding 12 months.
  • Minimum Service: The employee must have completed 5 consecutive years of service. Exceptions are made in the event of death or permanent disability.

The Gratuity Formula

For employees covered under the Act, the formula is: Gratuity=15×Last Drawn Salary×Completed Years of Service26\text{Gratuity} = \frac{15 \times \text{Last Drawn Salary} \times \text{Completed Years of Service}}{26}

Where:

  • Last Drawn Salary = Basic salary + Dearness Allowance (DA).
  • 15 = Representing 15 days of salary per year.
  • 26 = Number of working days in a month.

Worked Example

Suppose an employee has a last drawn basic salary of ₹80,000 and has completed 10 years of service:

  • Gratuity = (15×80,000×10)÷26=₹4,61,538(15 \times 80,000 \times 10) \div 26 = \text{₹}4,61,538.

Tax Exemption Rules

Under Section 10(10) of the Income Tax Act:

  • Government Employees: Entire gratuity payout is fully tax-exempt.
  • Private Employees: Gratuity is tax-exempt up to a lifetime ceiling of ₹20 Lakhs (₹2,000,000).