Gratuity Calculator
Calculate gratuity as per the Payment of Gratuity Act, 1972
Gratuity Calculator
What is Gratuity?
Gratuity is a monetary benefit given by an employer to an employee for the services rendered to the organization. It is a token of gratitude from the employer to the employee.
The Payment of Gratuity Act, 1972 makes it mandatory for employers with 10 or more employees to pay gratuity to their employees who have completed at least 5 years of continuous service.
Gratuity is an important retirement benefit that provides financial security to employees after their service period ends.
Eligibility for Gratuity
To be eligible for gratuity, an employee must fulfill the following conditions:
- The employee must have completed at least 5 years of continuous service with the employer.
- The gratuity is payable when an employee:
- Retires
- Resigns
- Is terminated (except in cases of serious misconduct)
- Dies or becomes disabled due to accident or illness
Note: In case of death or disability, the 5-year service requirement is waived.
How Gratuity is Calculated
The formula for calculating gratuity depends on whether you are covered under the Payment of Gratuity Act or not:
For employees covered under the Act (Private Sector):
Gratuity = (15 × Last Drawn Basic Salary × Years of Service) ÷ 26
Where:
- 15 represents 15 days
- Last Drawn Basic Salary includes Basic Pay + Dearness Allowance
- 26 is the number of working days in a month
For government employees:
Gratuity = (Last Drawn Basic Salary × Years of Service) ÷ 4
The maximum limit for gratuity payment is ₹20 lakhs.
Tax Implications on Gratuity
The tax treatment of gratuity depends on the category of employee:
For government employees:
Gratuity received is fully exempt from income tax.
For non-government employees covered under the Payment of Gratuity Act:
Gratuity is exempt from tax to the extent of the least of the following:
- Actual gratuity received
- ₹20,00,000 (₹20 lakhs)
- 15 days’ salary based on last drawn salary for each completed year of service or part thereof in excess of 6 months
For non-government employees not covered under the Payment of Gratuity Act:
Gratuity is exempt from tax to the extent of the least of the following:
- Actual gratuity received
- ₹20,00,000 (₹20 lakhs)
- Half month’s salary for each completed year of service