Gratuity Calculator — Amount Payable on Exit or Retirement

📜 Payment of Gratuity Act source

Formula (15 ÷ 26) × last drawn salary × completed years follows the Payment of Gratuity Act, 1972 (covered establishments; 5-year eligibility; ₹20 lakh tax-free ceiling under Section 10(10)). Official references: Ministry of Labour & Employment (labour.gov.in) and incometax.gov.in for the exemption limit. Last verified: June 2026.

How does the gratuity formula work?

The Payment of Gratuity Act 1972 mandates: Gratuity = (15/26) × last drawn salary × years of service. The 15/26 fraction means 15 days of wages for every completed year, with a month standardised at 26 working days. Salary here means basic + dearness allowance only — allowances, bonuses, and incentives are excluded. See also: the EPF Calculator and the Retirement Calculator.

What does each salary level earn per year of service?

Which exits qualify for gratuity?

Qualifies: resignation after 5 years, superannuation/retirement, retrenchment, termination (except for proven misconduct causing damage), death or disablement (no 5-year minimum — paid to nominee). Does not qualify: resignation before 5 years (subject to the 4-years-240-days judicial interpretation), dismissal for riotous conduct or moral turpitude offences.

Gratuity vs EPF vs leave encashment at exit

Your full-and-final settlement typically bundles three retirement components: gratuity (employer-funded, formula-based, ₹20L tax-free), EPF (your + employer corpus, tax-free after 5 years), and leave encashment (unused earned leave × daily salary, tax-free up to ₹25 lakh for private employees). Together they form the lump-sum base of retirement planning — project the EPF piece with the EPF calculator.

How does gratuity work for employees NOT covered by the Act?

Establishments with fewer than 10 employees fall outside the Payment of Gratuity Act. Such employers may still pay gratuity contractually, computed as (15/30) × average salary of last 10 months × completed years — note the 30-day divisor and average (not last-drawn) salary, both of which reduce the payout versus the Act formula. Tax exemption for non-covered employees is the least of: actual gratuity, ₹20 lakh, or the half-month-average-salary formula.

What is the timeline and process for claiming?

Apply in Form I within 30 days of exit. The employer must determine and pay within 30 days of it becoming due; delays attract simple interest at the government-notified rate. Disputes go to the Controlling Authority under the Act — typically the regional labour commissioner. Gratuity cannot be attached by courts for debt recovery and is protected even in employer insolvency up to statutory limits.

Can gratuity ever be forfeited?

Only narrowly: termination for riotous/violent conduct or moral-turpitude offences committed in the course of employment allows forfeiture — full or partial — and only to the extent of damage caused for property-damage cases. Ordinary resignation, retrenchment, or performance-based termination cannot touch it. Several High Court rulings have reversed blanket forfeitures lacking documented inquiry, so employers must follow due process.

How should you deploy a gratuity lump sum?

A mid-career gratuity (job switch) is retirement money wearing a bonus costume — route it to the same destination as your EPF: a PPF top-up, NPS, or equity index funds depending on horizon. At actual retirement, the standard split is: 12–18 months of expenses into an FD ladder, a medical buffer, and the balance into a systematic withdrawal plan for inflation-beating income.

Worked examples: three exits, three outcomes

Case 3 is the contested zone: multiple High Courts (notably Madras HC in Mettur Beardsell) treat 4 years + 240 days as five years for eligibility, but some employers still deny it — a Controlling Authority claim usually succeeds with attendance records.

Gratuity and CTC: are you funding your own gratuity?

Many offers list gratuity (~4.81% of basic) inside CTC. That is the actuarial accrual the employer provisions — legitimate, but it means the “benefit” is priced into your package, and leaving before 5 years forfeits money effectively shown as yours. Negotiation lens: treat in-CTC gratuity as deferred pay with a vesting cliff; if you expect a <5-year stint, weight cash-in-hand components higher when comparing offers.

Gratuity quick-reference card

Pin this card to your exit checklist alongside EPF transfer and leave-encashment computation — the three together typically equal 8–20 months of salary for a long-tenured employee.

Frequently asked questions

What is the gratuity formula?

For employees covered under the Payment of Gratuity Act 1972: Gratuity = (15/26) × last drawn basic+DA × completed years. 15 represents 15 days of wages per year; 26 is the number of working days in a month. For non-covered employees the formula is (15/30) × average salary × years.

Who is eligible for gratuity?

Employees completing 5 years of continuous service with one employer, payable on resignation, retirement, or termination. The 5-year rule is waived for death or disablement. Judicial rulings treat 4 years + 240 days as qualifying in many cases.

Is gratuity taxable?

For private employees covered by the Act, gratuity is tax-free up to ₹20 lakh (lifetime aggregate across employers). Government employees: fully exempt. Any amount beyond the limit is taxed as salary at your slab.

How are months rounded in gratuity?

Service of 6 months or more in the final year rounds UP to a full year; under 6 months is ignored. 12 years 7 months counts as 13 years; 12 years 5 months counts as 12.

Is there a maximum gratuity amount?

The statutory ceiling under the Act is ₹20 lakh. Employers may pay more as ex-gratia, but the excess over ₹20 lakh is taxable.

Does gratuity apply during notice period or to contract employees?

Notice period counts as service if you serve it. Fixed-term contract employees are entitled to pro-rata gratuity even below 5 years under the 2018 fixed-term employment rules, paid on contract expiry.

Does gratuity continue under the new labour codes?

Yes — the Code on Social Security 2020 retains gratuity with the same 15/26 structure and adds pro-rata gratuity for fixed-term employees regardless of the 5-year rule. The wage definition broadens (basic must be ≥50% of total pay), which will raise gratuity amounts for employees whose packages were structured with low basic. Implementation dates remain staggered by state.

Is gratuity payable during probation or for contract staff?

Probation counts as continuous service — it is employment. Fixed-term contract employees accrue pro-rata gratuity on contract expiry under the 2018 rules even below 5 years. Genuine consultants on professional contracts (not employment) fall outside the Act entirely.

Related calculators

📋 Tax disclaimer: This calculator provides estimates based on published rates and rules for FY 2025-26 and is not tax, legal, or investment advice. Tax outcomes depend on your complete circumstances — consult a chartered accountant or registered tax practitioner before filing. Sources: Income Tax Act, CBDT/CBIC notifications — see methodology.

Sources & References

• Payment of Gratuity Act, 1972 — Formula: (15÷26) × last salary × years; ₹20L tax-free ceiling under Section 10(10)
• Income Tax Act — Section 10(10) — Gratuity exemption limit and eligibility conditions