Gratuity Calculator

Gratuity Calculation Table: Quick Reference by Years of Service

Gratuity amounts for different years of service (assuming Basic + DA = ₹50,000/month, covered under Gratuity Act):

Note: Maximum tax-exempt gratuity is ₹20,00,000. Any amount exceeding this limit is taxable as per your income tax slab.

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Payment of Gratuity Act 1972: Eligibility, Formula, and Maximum Limits

Gratuity is a retirement benefit paid by employers to employees who have completed at least five years of continuous service. Under the Payment of Gratuity Act, 1972, organizations with 10 or more employees must provide this benefit. The gratuity amount depends on your last drawn salary - which includes basic pay plus dearness allowance (DA) - and your total years of service. Understanding how gratuity works helps you plan your retirement finances and ensures you receive your rightful entitlement when leaving an organization.

Gratuity Formula for Employees Covered Under the Act

For organizations covered under the Payment of Gratuity Act (those with 10+ employees), the formula is: Gratuity = (15 × Last Drawn Salary × Years of Service) / 26. The "15" represents 15 days' wages for each year of service, while "26" represents the average working days in a month. Your last drawn salary includes basic pay and dearness allowance only - other components like HRA, bonuses, or special allowances are excluded. For example, if your Basic + DA is ₹50,000 and you've worked 10 years, your gratuity equals (15 × 50,000 × 10) / 26 = ₹2,88,462.

Gratuity Calculation for Organizations Not Covered Under the Act

Smaller organizations with fewer than 10 employees aren't legally required to follow the Payment of Gratuity Act, but many still offer gratuity as a benefit. The formula differs slightly: Gratuity = (15 × Last Drawn Salary × Years of Service) / 30. This calculation uses 30 days instead of 26, resulting in a slightly lower gratuity amount. Using the same example of ₹50,000 salary and 10 years of service: (15 × 50,000 × 10) / 30 = ₹2,50,000. If your employer isn't covered under the Act, clarify their gratuity policy in your employment contract.

What is Gratuity and When Are You Eligible?

Gratuity is a lump-sum payment made by an employer as a token of appreciation for an employee's long-term service. Under Indian labor law, you become eligible for gratuity after completing five years of continuous employment with the same organization. However, gratuity is paid even before five years in cases of death or permanent disability due to accident or illness. The 2020 Social Security Code also introduced provisions allowing fixed-term employees to receive gratuity after just one year of service. Gratuity is payable upon retirement, resignation, superannuation, or termination - essentially any exit from the organization after meeting eligibility criteria.

How Does the Service Period Rounding Rule Work?

The Payment of Gratuity Act includes an important rounding provision for your final year of service. If you've completed more than six months in your last year, it rounds up to a full year. For instance, if you've worked 10 years and 7 months, your gratuity will be calculated for 11 years. But if you've completed 10 years and 4 months, it counts as 10 years only. This rounding rule can significantly impact your gratuity amount, so timing your resignation strategically - if possible - can maximize your benefit. Our calculator automatically applies this rounding rule when you enter your additional months.

Maximum Gratuity Limit and Tax Exemption Rules

The maximum tax-exempt gratuity amount is ₹20,00,000 (twenty lakh rupees). For government employees (central, state, or local authority), the entire gratuity amount is tax-free regardless of the amount. For private sector employees covered under the Gratuity Act, the least of these three is tax-exempt: the actual gratuity received, the eligible calculated gratuity, or ₹20 lakh. Any amount exceeding ₹20 lakh is treated as taxable income under your applicable income tax slab. For retirement planning and tax optimization, consider our income tax calculator to understand your overall tax liability.

Investing Your Gratuity Amount for Maximum Returns

When you receive your gratuity, investing it wisely ensures your retirement corpus grows. Conservative options include fixed deposits with banks or the Senior Citizens Savings Scheme offering guaranteed returns. For moderate risk tolerance, consider investing in debt mutual funds or Public Provident Fund (PPF). If you have time on your side, equity mutual funds or balanced funds can provide inflation-beating returns over the long term. Many retirees use gratuity for immediate goals like home renovation, children's education, or clearing loans, while investing the remainder. Calculate your retirement needs using our retirement calculator to plan effectively. For fixed deposit returns, try our FD calculator.

Last Updated: January 2026 | Reviewed for accuracy