How to use the gratuity calculator
- Enter your last drawn basic salary plus dearness allowance – a month’s amount.
- Enter your years and months of continuous service with this employer.
- Choose whether your employer is covered by the Payment of Gratuity Act – most organisations with 10 or more employees are.
Gratuity formula
Covered by the Act – 15 days’ wages for every year of service, with a month taken as 26 working days:
\text{Gratuity} = \text{Basic + DA} \times \dfrac{15}{26} \times \text{years}A final part year of more than 6 months counts as a full year: 9 years 7 months is 10 years, 9 years 6 months is 9.
Not covered – employers may still pay gratuity, usually as half a month’s wages per completed year (15 ÷ 30).
Years counted: 11. Gratuity = ₹50,000 × 15 ÷ 26 × 11 = ₹3,17,308.
Who gets gratuity
- Permanent employees after 5 years of continuous service – or earlier on death or disability.
- Fixed-term employees after 1 year, under the Code on Social Security, 2020.
- Under the labour codes, allowances above half of your pay are added back to “wages”, which can make gratuity higher than basic + DA alone suggests.
Tax on gratuity
Private-sector employees pay no tax on gratuity up to ₹20 lakh over their whole career; anything above is taxed as salary. Government employees’ gratuity is fully tax-free.
Frequently asked questions
How is gratuity calculated?
Last basic + DA × 15 ÷ 26 × years of service. For ₹30,000 a month and 10 years that is ₹1,73,077.
Is gratuity paid after 4 years 6 months?
Under the Act, 5 years of continuous service are needed. Some courts have accepted 4 years and 240 working days, but employers do not all follow this. Fixed-term employees qualify after 1 year.
Is gratuity taxable?
For private employees it is tax-free up to ₹20 lakh in a lifetime; the rest is taxed as salary. For government employees it is fully tax-free.
What is the maximum gratuity?
The Act caps the gratuity an employer must pay at ₹20 lakh. An employer can pay more, but the amount above ₹20 lakh is taxable.
When must gratuity be paid?
Within 30 days of it becoming due. Late payment carries simple interest.