How to use the Gratuity Calculator
Gratuity is a lump-sum amount paid by your employer as a token of appreciation for your long-term service. It is governed by the Payment of Gratuity Act, 1972 (now under the Code on Social Security).
- Enter your last drawn monthly basic salary plus dearness allowance (DA).
- Enter your date of joining and date of leaving.
- Choose whether your employer is covered under the Payment of Gratuity Act.
- The calculator shows total gratuity payable, years considered after rounding, and whether the statutory cap applies.
Formula for calculating gratuity
Gratuity in India is calculated using the formula: (Last Drawn Salary × 15 × Years) ÷ 26 under the Payment of Gratuity Act, 1972.
For employees covered under the Act, part of service beyond 6 months in the last year is counted as a full year. For employees not covered, the divisor is 30 (calendar days in a month).
| Coverage | Formula | Divisor basis |
|---|
| Covered under the Act | (Salary × 15 × Years) ÷ 26 | 26 working days/month |
| Not covered under the Act | (Salary × 15 × Years) ÷ 30 | 30 calendar days/month |
Examples for calculating gratuity
Example 1: 15 years with last drawn salary of ₹30,000 — Gratuity = (15 × 30,000 × 15) ÷ 26 = ₹2,59,615. Maximum gratuity is ₹20 lakh for private sector; ₹25 lakh for Central Government employees.
Example 2: 7 years, ₹30,000 salary (not covered) — Gratuity = (15 × 30,000 × 7) ÷ 30 = ₹1,05,000.
Example 3: 10 years 7 months, ₹75,000 salary — tenure exceeds 6 months so it rounds to 11 years: (15 × 75,000 × 11) ÷ 26 = ₹4,75,962.
Example 4: 4 years 8 months, ₹40,000 — may qualify under the 240-day rule; if eligible, gratuity = (15 × 40,000 × 5) ÷ 26 = ₹1,15,385.
Difference between covered & not covered under the Gratuity Act
Understanding whether your employer is covered under the Payment of Gratuity Act, 1972, is important because it directly affects how your gratuity is calculated.
| Factor | Covered under the Act | Not covered under the Act |
|---|
| Formula used | (Salary × 15 × Years) ÷ 26 | (Salary × 15 × Years) ÷ 30 |
| Basis | Working days (26 days/month) | Calendar days (30 days/month) |
| Gratuity amount | Higher payout | Lower payout |
| Legal applicability | Mandatory for eligible employers (10+ employees) | Based on company policy |
| Rounding rule | >6 months counted as a full year | No standard rule |
Gratuity rules in India
Gratuity is a statutory lump-sum payment by the employer for long service, governed by the Payment of Gratuity Act, 1972.
- Payable after 5 years of continuous service (on superannuation, retirement, or resignation).
- The 5-year rule does not apply in cases of death (paid to nominee/heirs) or disablement due to accident/disease.
- Under the new Labour Code (Code on Social Security), fixed-term employees may be eligible for pro-rata gratuity after 1 year of continuous service.
Who is eligible for gratuity in India?
- At least 5 years of continuous service with the employer (for resignation, retirement, or superannuation).
- The 5-year rule is waived in case of death or disablement due to accident or disease.
- Fixed-term employees may be eligible for pro-rata gratuity after 1 year under Labour Code 2025.
- The organization typically has 10 or more employees for mandatory coverage under the Act.
Taxation rules for gratuity
Government employees (central/state/local authority) — gratuity is exempt from income tax up to a maximum ceiling of ₹25 lakh.
Private sector employees whose employer is covered under the Payment of Gratuity Act — exempt up to ₹20 lakh in a lifetime.
In your entire working life, the maximum tax-exempt gratuity you may claim cannot exceed ₹20 lakh (private) or ₹25 lakh (government).
Gratuity amount investment options
Investing the gratuity amount involves considering various options based on risk appetite and investment horizon. Diversify across asset classes and review your portfolio regularly.
| Investment option | About |
|---|
| Fixed Deposits (FDs) | Low-risk investment offering guaranteed returns and capital safety |
| Public Provident Fund (PPF) | Long-term, tax-efficient investment with a 15-year lock-in under Section 80C |
| Employee Provident Fund (EPF) | Retirement savings scheme with stable returns and tax benefits |
| National Pension System (NPS) | Market-linked retirement plan investing in equity and debt for growth |
| Equity Mutual Funds | Stock-based funds offering higher long-term returns with higher risk |
| Debt Mutual Funds | Invest in bonds and fixed-income instruments for stable returns |
| Sovereign Gold Bonds (SGBs) | Paperless gold investment with fixed interest and tax benefits |
| Real Estate / REITs | Property or REIT investments for long-term wealth creation |
