Gratuity Calculator
Calculate gratuity payable to an employee under the Payment of Gratuity Act, 1972 (India) based on last drawn salary and years of service.
How to use this tool
- Enter last drawn monthly salary (basic + da) and years of service in the fields above.
- Results update instantly as you type — or click Calculate.
- Read your gratuity amount and the full breakdown beneath it.
⚠ This tool provides general estimates for education only and is not financial, tax or legal advice. Figures may not reflect your situation — verify with a qualified professional.
Formula
Gratuity = (Last Monthly Salary × Years of Service × 15) ÷ 26
The divisor 26 represents working days in a month; 15 represents half a month's wage per year of service.
How it works
Under the Payment of Gratuity Act, 1972, employees who have completed at least 5 years of continuous service are entitled to a gratuity payment upon resignation, retirement, or death. The formula uses 15 days of Basic salary plus Dearness Allowance (DA) per completed year of service, with 26 as the denominator representing the number of working days in a month. The maximum tax-free gratuity under the Income Tax Act is ₹20,00,000 (as of 2023).
Worked example
Employee with ₹50,000 Salary and 10 Years of Service
- Last drawn monthly salary (Basic + DA) = ₹50,000
- Years of service = 10
- Gratuity = (50,000 × 10 × 15) / 26
- = 7,500,000 / 26 = ₹2,88,461.54
Gratuity payable = ₹2,88,461.54
Common mistakes to avoid
- Using CTC or gross salary instead of the last drawn basic salary plus dearness allowance, which overstates the gratuity payout significantly.
- Rounding years of service down when an employee has completed more than 6 months in a partial year: under the Payment of Gratuity Act, a fraction of a year exceeding 6 months is rounded up to the next full year.
- Ignoring the statutory cap: gratuity payable under the Act is limited to a maximum of Rs 20 lakh (as currently notified); any excess is at the employer's discretion and may receive different tax treatment.
Key terms
- Who is eligible for gratuity?
- Employees who have completed at least 5 continuous years of service with an employer covered under the Payment of Gratuity Act, 1972 are eligible.
- What does 'Basic + DA' mean?
- Basic salary is the fixed component of pay, and Dearness Allowance (DA) is a cost-of-living adjustment. Both are included in the gratuity calculation.
- What is the maximum tax-free gratuity?
- As of 2023, gratuity up to ₹20,00,000 is exempt from income tax under Section 10(10) of the Income Tax Act.
- Why is 26 used as the divisor?
- 26 represents the number of working days per month (assuming a 6-day work week with 4 Sundays off), as prescribed by the Act.
Frequently asked questions
- Is gratuity mandatory for all employers in India?
- The Payment of Gratuity Act, 1972 applies to factories, mines, oilfields, plantations, ports, railways, shops, and other establishments employing 10 or more persons. Once the Act applies to an establishment, it continues even if headcount later drops below 10.
- Is gratuity received by an employee taxable?
- Gratuity received from a covered employer is exempt up to Rs 20 lakh under Section 10(10) of the Income Tax Act for non-government employees, provided the employer is covered by the Payment of Gratuity Act. Amounts above the exemption limit are taxable as salary.
- What happens to gratuity if an employee is terminated for misconduct?
- The employer can forfeit the gratuity wholly or partially if the employee is dismissed for willful omission or negligence causing loss or damage, or for riotous or disorderly conduct. Simple poor performance without misconduct does not justify forfeiture.