Contents
- 1 Gratuity Calculator — Payment of Gratuity Act 1972
- 1.1 How to Use the Gratuity Calculator
- 1.2 What is Gratuity?
- 1.3 Gratuity Formula — Covered vs Non-Covered
- 1.4 Eligibility — When Can You Claim Gratuity?
- 1.5 Tax Treatment of Gratuity — Section 10(10)
- 1.6 Worked Examples
- 1.7 Common Gratuity Mistakes & Disputes
- 1.8 Frequently Asked Questions
- 1.9 Related Calculators
Gratuity Calculator — Payment of Gratuity Act 1972
Calculate your gratuity amount as per Section 4 of the Payment of Gratuity Act, with covered vs non-covered breakdown, ₹20 lakh tax exemption, and complete eligibility checklist.
How to Use the Gratuity Calculator
- Enter Last Drawn Salary: Basic + DA only. Exclude HRA, special allowance, bonuses, and other allowances — gratuity is calculated on basic + DA per Section 2(s) of the Payment of Gratuity Act 1972.
- Enter Years Completed: Full years of continuous service with the employer. Must be 5+ years to be eligible (exception: death or disability).
- Enter Months in Final Year: If ≥ 6 months, rounded up to the next full year for calculation (for covered employees).
- Select Coverage Status: Most establishments with 10+ employees are covered under the Act. Smaller employers may pay gratuity under private agreement using a different formula.
What is Gratuity?
Gratuity is a one-time, lump-sum payment made by an employer to an employee as a reward for continuous, long service. It is governed by the Payment of Gratuity Act 1972, applicable to all establishments employing 10 or more persons (factories, mines, oilfields, plantations, ports, railway companies, shops, etc.). Gratuity is paid in five situations:
- Resignation after completing 5 years of continuous service
- Retirement / Superannuation
- Termination by employer (except for misconduct)
- Death of employee (no minimum service required; paid to nominee)
- Disability due to accident or disease (no minimum service)
Why Gratuity Matters
For a salaried Indian employee with 30+ years of service, gratuity can be ₹15-20 lakh at retirement — a meaningful corpus tax-free under Section 10(10) of the Income-tax Act. Knowing your accrued gratuity helps in planning job changes (you forfeit gratuity if you leave before 5 years) and retirement.
Gratuity Formula — Covered vs Non-Covered
For Covered Employees (Most Cases)
Gratuity = (Last Drawn Basic + DA × 15 × Years of Service) / 26 The “26” represents 26 working days in a month (excluding Sundays). The 15 represents 15 days of salary for each completed year. Service of 6+ months in the final year is rounded UP to one full year; below 6 months rounded down.
For Non-Covered Employees (Smaller Establishments)
Gratuity = (Last Drawn Basic + DA × 15 × Years of Service) / 30 Different denominator (30 instead of 26). Also, no rounding-up benefit — partial years are calculated on actual days.
For Government Employees
Government employees follow Central/State pay rules with different formulae. Their gratuity is fully tax-exempt regardless of amount (uncapped under Section 10(10)(i)).
Eligibility — When Can You Claim Gratuity?
| Situation | Minimum Service | Notes |
|---|---|---|
| Resignation | 5 years | Continuous service required |
| Retirement / Superannuation | 5 years | — |
| Termination (no misconduct) | 5 years | Employer must pay |
| Death | None | Paid to nominee; full amount per formula |
| Disability | None | Permanent disability from accident/disease |
| Termination for misconduct | Forfeit possible | Only if loss caused; partial forfeiture under Sec 4(6) |
Tax Treatment of Gratuity — Section 10(10)
| Employee Type | Tax Exemption |
|---|---|
| Central/State Government Employees | FULLY exempt (no cap) |
| Covered Private Employees (PoG Act) | Lower of: (a) ₹20,00,000, (b) Actual received, (c) ((Basic+DA × 15 × Years)/26) |
| Non-Covered Employees | Lower of: (a) ₹20,00,000, (b) Actual received, (c) ((Avg salary last 10 months × 15 × Years)/30) |
The ₹20 lakh limit (raised from ₹10L in 2019) is a LIFETIME limit across all employers. If you have received gratuity from a previous employer, the remaining limit reduces. The taxable portion (excess above ₹20L) is added to your salary and taxed at slab rate.
Worked Examples
Example 1: 10 Years, Basic+DA ₹50,000
Covered employee. Last drawn Basic+DA = ₹50,000/month. Service = 10 years 6 months (rounded to 11). Gratuity = (50,000 × 15 × 11) / 26 = ₹3,17,308. Fully tax-free (well below ₹20L).
Example 2: 25 Years, Senior Executive ₹2,00,000 Basic+DA
Covered employee. Last drawn Basic+DA = ₹2,00,000/month. Service = 25 years. Gratuity = (2,00,000 × 15 × 25) / 26 = ₹28,84,615. Tax-free: ₹20,00,000. Taxable: ₹8,84,615 — added to salary, taxed at applicable slab.
Example 3: Death Benefit, 3 Years of Service
Employee passes away after 3 years of service. Basic+DA = ₹40,000/month. Gratuity = (40,000 × 15 × 3) / 26 = ₹69,231. Paid to nominee. Fully tax-free in nominee’s hands.
Example 4: Non-Covered Employer Calculation
Smaller establishment. Basic+DA = ₹35,000/month. Service = 12 years exact. Gratuity = (35,000 × 15 × 12) / 30 = ₹2,10,000. Fully tax-free.
Common Gratuity Mistakes & Disputes
- Including HRA / Special Allowance: Only Basic + DA. Many employers initially include HRA in gratuity calculation; insist on the Act-mandated formula.
- Not rounding service months: 6+ months in final year MUST be rounded up for covered employees. Some employers forget — claim it.
- Less than 5 years denial: If you’re at 4 years 240 days, the 240 days don’t get you over 5 — you forfeit gratuity. Plan resignations carefully if approaching 5 years.
- Forgetting nomination: File Form F (nomination) with your employer. Without it, gratuity in case of death goes through legal succession (lengthy process).
- Delay in payment: Employer must pay within 30 days of becoming due. Beyond that, interest at the rate notified by Central Government applies (currently 10% simple interest per annum per Rule 8(1)).
- 5-year exception for fixed-term: Fixed-term employees and contract workers can claim gratuity even without completing 5 years if their tenure was completed (2022 Code on Social Security clarification).
Frequently Asked Questions
Is the 5-year eligibility strict?
Yes for resignation and termination cases. For death or permanent disability, no minimum service is required. For continuous service, breaks due to maternity (up to 12 weeks), legal strike, lockout, or sickness do NOT count as breaks. Working 240+ days in a year counts as one year of continuous service for non-mining and 190 days for mining.
Can I claim gratuity if I resign at 4 years 11 months?
No. The 5-year clock is from your date of joining. Even one day short and you forfeit. Madras HC has held that 4 years 240 days of continuous service in the 5th year COUNTS as a full 5th year, but this is region-specific. Plan resignations after completing 5 years to be safe.
What if my employer refuses to pay gratuity?
File Form I (application) with the Controlling Authority (Labour Commissioner) under the Payment of Gratuity Act. They will adjudicate. You can also approach the Labour Court. Penalty for non-payment is up to 2 years imprisonment + ₹20K-1L fine for the employer.
Is the ₹20 lakh limit lifetime or per employer?
LIFETIME across all employers. If you received ₹15 lakh tax-free gratuity from Employer A, only ₹5 lakh additional tax-exempt gratuity is available from Employer B.
Does gratuity include performance bonus / variable pay?
No. Only Basic Salary + Dearness Allowance per Section 2(s). HRA, conveyance, special allowance, bonuses, ESOP — all excluded.
Do I get gratuity if I’m terminated for misconduct?
Forfeiture is possible but ONLY if the misconduct caused loss to the employer. Even then, only the amount equivalent to the loss can be forfeited — not the full gratuity. Section 4(6) of the Act.
How is gratuity taxed if I receive ₹25 lakh?
₹20 lakh tax-free under Section 10(10). The remaining ₹5 lakh is added to your salary income that year and taxed at your applicable slab rate (could be up to 30% + cess for high earners).
Is the 26-day denominator correct?
Yes for covered establishments. The Act assumes 26 working days per month (excluding Sundays). For non-covered employers, the denominator is 30. Some private employer policies use 26 even though not legally covered — that’s fine for the employee (more generous).
Can my employer cap gratuity at less than the formula?
No for covered establishments — the Act-mandated formula is the MINIMUM. Employers can pay MORE under their internal policy, but not less. If your offer letter caps gratuity at less, the higher Act amount prevails.
What happens to gratuity in a company merger or acquisition?
Service continuity is protected. If your employer merges with another company or you are absorbed under transfer of service, your previous service years count for gratuity computation. Get this confirmed in writing from HR before any organisational restructuring.
Is gratuity reinvested by employer or paid directly?
Paid directly as lump sum to you (or nominee). Many companies fund their gratuity liability via LIC Group Gratuity Schemes or other employee benefit trusts — but the gratuity amount itself goes to you.
Can I claim gratuity multiple times in my career?
Yes — once with each qualifying employer (after 5 years). The ₹20L tax-free LIMIT, however, is lifetime. So you can claim gratuity from your 3rd, 4th, 5th employer, but tax exemption stops once cumulative tax-free gratuity reaches ₹20L.