Gratuity Calculator

What is Gratuity?

Gratuity is a one-time benefit paid by an employer to an employee as a “thank you” for long-term service. It’s typically paid when you leave the company due to resignation, retirement, superannuation, or on death/disablement. In India, gratuity is governed by the Payment of Gratuity Act, 1972.

Who is Eligible?

• Service requirement: Generally, at least 5 years of continuous service with the same employer.
• Exceptions: In case of death or permanent disablement, the 5-year condition is usually waived.
• Coverage: The Act applies to establishments that meet statutory criteria (e.g., factory/office with minimum employee count). Many employers follow the same formula even if not formally covered.

Simple example: If you worked 6 years and 7 months at a company and resign, you’ll likely qualify for gratuity.

How is Gratuity Calculated?

There are two widely used formulas depending on whether the employer is covered under the Payment of Gratuity Act.

1) For Employers Covered by the Act

Gratuity = (15 / 26) × (Last drawn Basic + DA) × (Completed years of service)

• 15/26 represents 15 days’ salary for every 26 working days in a month.
• Completed years: Service is rounded: ≥ 6 months counts as a full year, < 6 months ignored.
• Salary: Only Basic + Dearness Allowance (if DA is applicable) are considered.

Example (Covered): Basic + DA = ₹40,000; Service = 7 years 8 months → treated as 8 years.
Gratuity = (15/26) × 40,000 × 8 ≈ 0.5769 × 40,000 × 8 ≈ ₹1,84,615.

2) For Employers Not Covered by the Act (Common Policy)

Gratuity = (15 / 30) × (Last drawn Basic + DA) × (Completed years of service)

• Some organisations not under the Act use a 30-day month convention.
• Rounding rules can vary by company policy (often only full years are counted).

Example (Non-Covered): Basic + DA = ₹40,000; Service = 7 years 8 months → company policy counts 7 years.
Gratuity = (15/30) × 40,000 × 7 = 0.5 × 40,000 × 7 = ₹1,40,000.

Important Limits & Notes

• Statutory ceiling: A maximum gratuity payout applies (our calculator lets you set a ceiling; default is ₹20 lakh). Verify current limits applicable to you.
• Part of year: For Act-covered employers, ≥ 6 months is considered a full year. Less than 6 months is ignored.
• Salary components: Only Basic + DA are included; allowances and bonuses are excluded.

Tax Treatment (Plain English)

• Central/State Govt employees: Gratuity is typically fully exempt from tax.
• Non-Government employees covered by the Act: Exemption up to the least of:
  • Actual gratuity received
  • Statutory overall limit (e.g., ₹20 lakh; check latest)
  • 15 days’ salary per completed year (15/26 × last drawn Basic + DA × years)
• Non-Government employees not covered by the Act: Exemption up to the least of:
  • Actual gratuity received
  • Statutory overall limit
  • Half month’s salary for each completed year (often 15/30 × last drawn Basic + DA × years)
• Any gratuity above exemption is taxable under “Income from Salaries”.

Tax example (Covered): Calculated gratuity ₹22 lakh, ceiling ₹20 lakh → Exempt up to ₹20 lakh; balance ₹2 lakh taxable.

Worked Examples

A) Covered by the Act

• Last Basic + DA: ₹55,000
• Service: 12 years 5 months → counts as 12 years
• Gratuity = (15/26) × 55,000 × 12 ≈ 0.5769 × 55,000 × 12 ≈ ₹3,81,000 (approx)

B) Covered by the Act (round-up case)

• Last Basic + DA: ₹30,000
• Service: 9 years 7 months → counts as 10 years
• Gratuity = (15/26) × 30,000 × 10 ≈ ₹1,73,077 (approx)

C) Not Covered (company policy 15/30)

• Last Basic + DA: ₹48,000
• Service: 6 years 10 months → company counts 6 years
• Gratuity = (15/30) × 48,000 × 6 = 0.5 × 48,000 × 6 = ₹1,44,000

About the FinSarthi Gratuity Calculator

The FinSarthi Gratuity Calculator estimates your gratuity quickly and clearly—matching the common methods used in India. It’s designed for HR professionals and employees alike.

Key Features

• Act vs Non-Act mode: Choose the correct formula (15/26 or 15/30).
• Smart rounding: Toggle “≥ 6 months = 1 year” for Act-covered calculations.
• Salary inputs: Separate fields for Basic and DA.
• Ceiling control: Set the statutory ceiling (default ₹20,00,000) to cap payouts.
• Tax estimation: See potential tax-exempt amount vs taxable portion under Section 10(10) logic.
• What-if: Adjust months of service to instantly see rounding impact.
• Mobile-first UI: Clean and fast on all devices.
• Privacy-first: We don’t store your data; everything runs in your browser.

How to Use (Step-by-Step)

1. Select Act-Covered or Non-Act mode.
2. Enter Basic and DA (last drawn figures).
3. Enter Years and Months of service.
4. (Act mode) Keep “≥ 6 months = 1 year” enabled for proper rounding.
5. Set Ceiling (default ₹20,00,000) if applicable.
6. (Optional) Toggle Tax Estimate to view exempt vs taxable split.
7. Review Calculated Gratuity, Exempt amount, and Taxable amount.

Edge Cases You Should Know

• Less than 5 years: Gratuity is generally not payable, except in death/disablement cases.
• Multiple breaks: “Continuous service” has specific rules; HR/Act definitions decide eligibility.
• Part-time/contract roles: Eligibility depends on contract terms and whether the Act applies.
• Ceiling revisions: If the statutory ceiling changes, use the latest value in the calculator.

FAQs on Gratuity

1) Do I get gratuity if I resign?

Yes, if you meet the 5-year continuous service rule (except death/disablement, where 5-year rule is waived).

2) What counts as “salary” for gratuity?

Basic + DA only. Other allowances (HRA, LTA, bonus) are not included.

3) Is 4 years 10 months counted as 5 years?

Under the Act, rounding applies to the last partial year, not the total 5-year eligibility rule. Many employers follow 5 years strictly for eligibility. Check HR policy/jurisprudence applicable to you.

4) Is gratuity taxable?

Government employees: fully exempt. Others: exempt up to limits under Section 10(10); any extra is taxable as Salary.

5) What if my company is not covered under the Act?

Many such companies still pay gratuity using an internal policy (often 15/30). Our calculator supports both methods.

6) What if my Basic changes frequently?

Gratuity uses your last drawn Basic + DA on the separation date, not an average.

7) What happens if I was on unpaid leave?

Continuous service has specific definitions; certain leaves may count. HR applies the Act’s rules to determine eligible service.

8) Is the statutory ceiling per employer or overall?

The exemption limit is an overall cap for gratuity received from one or more employers over time. Track your cumulative usage.

9) Can I get gratuity if I am terminated?

In cases of misconduct, employers may forfeit gratuity partially or fully subject to the Act and due process. Otherwise, normal rules apply.

10) Is DA always part of salary for gratuity?

If DA is part of your pay structure, it is included. If your employer has no DA component, only Basic is used.

11) Does probation period count?

If it’s part of continuous service with the same employer, it generally counts. Check your HR policy/appointment terms.

12) How do I claim gratuity?

Submit the prescribed form to your employer/HR. Employers are obliged to compute and pay within timelines under the Act.

13) What if my employer delays payment?

The Act prescribes timelines and interest for delays. Escalate to HR, then appropriate authorities if required.

14) Can I nominate a family member?

Yes. Fill the nomination form after joining and update it on life events (marriage, children, etc.).

15) Does death/disablement change calculation?

The 5-year service condition is waived. Many employers also have separate insurance/benefits; check with HR.

Final Thoughts – Estimate Your Gratuity with FinSarthi

Gratuity can be a sizeable part of your exit benefits. Use the FinSarthi Gratuity Calculator to quickly estimate your payout, understand tax exemptions, and plan your finances better. Set the right ceiling, pick the right formula (Act vs Non-Act), and see your numbers instantly.