Gratuity Calculator

Gratuity Calculator India 2026: Free Online Calculation Tool

Gratuity is a statutory benefit paid by employers to employees who have completed a minimum of 5 years of continuous service. It is governed by the Payment of Gratuity Act, 1972, and represents one of the most significant terminal benefits in Indian employment law. Use our free gratuity calculator below to determine your exact gratuity entitlement.

Gratuity Calculation Formula

For employees covered under the Payment of Gratuity Act (organisations with 10+ employees):

Gratuity = (15 x Last Drawn Salary x Completed Years of Service) / 26

Where:

• Last Drawn Salary = Basic Salary + Dearness Allowance (DA)
• 15 = Number of days of salary payable per year of service
• 26 = Working days in a month (as per the Act)
• Completed Years of Service = Total years, with more than 6 months in the last year rounded up to a full year

For employees not covered under the Act (organisations with fewer than 10 employees, or where the employer voluntarily pays gratuity):

Gratuity = (15 x Last Drawn Salary x Completed Years of Service) / 30

The denominator changes from 26 to 30, slightly reducing the gratuity amount.

Gratuity Calculator: Step-by-Step Example

Example 1: IT Professional

• Last Drawn Basic Salary: Rs 50,000/month
• Dearness Allowance: Rs 0 (most private sector companies do not have a separate DA)
• Years of Service: 7 years and 8 months (rounds up to 8 years)

Gratuity = (15 x Rs 50,000 x 8) / 26

Gratuity = Rs 60,00,000 / 26

Gratuity = Rs 2,30,769
Example 2: Manufacturing Employee

• Last Drawn Basic Salary: Rs 25,000/month
• Dearness Allowance: Rs 5,000/month
• Last Drawn Salary for gratuity = Rs 30,000
• Years of Service: 12 years and 3 months (rounds down to 12 years, as 3 months is less than 6)

Gratuity = (15 x Rs 30,000 x 12) / 26

Gratuity = Rs 54,00,000 / 26

Gratuity = Rs 2,07,692
Example 3: Senior Manager (Maximum Limit Scenario)

• Last Drawn Basic + DA: Rs 1,50,000/month
• Years of Service: 25 years

Calculated Gratuity = (15 x Rs 1,50,000 x 25) / 26 = Rs 21,63,461

However, the maximum gratuity payable under the Act is Rs 20,00,000.

Gratuity Payable = Rs 20,00,000 (capped at maximum)

Note: The employer can voluntarily pay gratuity exceeding Rs 20 lakh, but only Rs 20 lakh is exempt from tax under Section 10(10) of the Income Tax Act.

Eligibility Rules for Gratuity

Minimum Service Requirement: The standard rule is 5 years of continuous service. However, gratuity is payable regardless of service length in case of:

• Death of the employee (payable to nominee/legal heir)
• Disablement due to accident or disease

Who is Covered: All employees in establishments employing 10 or more persons are covered under the Payment of Gratuity Act. Once the Act becomes applicable to an establishment, it continues to apply even if the employee count falls below 10.
Continuous Service Clarification: An employee is considered in continuous service even if they had periods of absence due to sickness, accident, authorised leave, or strike/lockout. The key test is whether the employment relationship was maintained continuously.
Forfeiture of Gratuity: An employer can forfeit gratuity (wholly or partially) only if the employee’s services were terminated for:

• Riotous or violent behaviour on the premises
• Any act constituting an offence involving moral turpitude, provided the employee is convicted by a court

Mere termination for poor performance or misconduct (other than the above grounds) does not allow gratuity forfeiture.

Gratuity Taxation Rules

Gratuity taxation depends on the type of employee:

Government Employees: Gratuity received is fully exempt from income tax. No upper limit on exemption.
Employees Covered Under the Payment of Gratuity Act: The least of the following is exempt from tax:

1. Actual gratuity received

2. Rs 20,00,000

3. 15 days salary (based on last drawn salary) for each completed year of service

Any amount above the exempt limit is taxable as “Income from Salary.”

Employees Not Covered Under the Act: The least of the following is exempt:

1. Actual gratuity received

2. Rs 20,00,000

3. Half month’s salary for each completed year of service (based on the average salary of the last 10 months)

Important: If an employee receives gratuity from multiple employers during their career, the Rs 20 lakh exemption is a cumulative lifetime limit, not per employer.

Impact of New Labour Codes on Gratuity

The Social Security Code, 2020, proposes significant changes to gratuity:

• Gratuity eligibility may be reduced from 5 years to 1 year for fixed-term contract employees
• The definition of wages for gratuity calculation may be standardised (Basic + DA must be at least 50% of CTC)
• These changes will take effect once state governments notify the rules and implementation dates

Frequently Asked Questions

Q1: Is gratuity applicable to contract employees?

Under the current law, contract employees who complete 5 years of continuous service with the same principal employer through the same staffing agency are eligible for gratuity. The staffing agency (contractor) is primarily liable, but the principal employer has secondary liability.

Q2: How is gratuity calculated for employees who worked part of a year?

Service of more than 6 months in the last year is rounded up to a full year. Service of 6 months or less is rounded down. Example: 4 years and 7 months = 5 years for gratuity calculation. 4 years and 5 months = 4 years.

Q3: Can an employer pay less than the calculated gratuity?

No. The gratuity amount calculated under the formula is the minimum. An employer can pay more but never less than the statutory calculation.

Q4: What is the time limit for gratuity payment?

The employer must pay gratuity within 30 days of it becoming payable. If delayed beyond 30 days, the employer must pay simple interest at a rate notified by the government from the date gratuity becomes payable until it is actually paid.

Q5: Is gratuity shown as part of CTC?

Many employers include gratuity as a CTC component at 4.81% of Basic Salary. This is an accrual/provision, and the actual payment is made only upon eligibility (5 years of service or applicable exception).

Calculate Your Gratuity with TMS

Need help understanding your gratuity obligations as an employer? TMS handles gratuity calculation, provisioning, and payment as part of our payroll and compliance services.

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