Gratuity Calculator

Gratuity is a statutory monetary benefit paid by an employer to an employee in recognition of long-term service. In India, payment of gratuity is governed by the Payment of Gratuity Act, 1972. It applies to every factory, mine, oilfield, plantation, port, railway company, shop, or establishment employing 10 or more people.

Employees become eligible for gratuity after completing at least 5 years of continuous service with the same employer (except in cases of death or disablement, where the 5-year requirement is waived). The FinToolkit Gratuity Calculator computes your exact entitlement and statutory tax-free limit.

How gratuity is calculated in India

For employees covered under the Payment of Gratuity Act, gratuity is calculated using a standard statutory formula:

Rounding of service tenure: Under the Act, any service period in excess of 6 months is rounded up to the next full year. For instance, a tenure of 7 years and 7 months is rounded up to 8 years. A tenure of 7 years and 4 months is rounded down to 7 years.

Worked gratuity example

Consider an employee with a last drawn basic salary of ₹60,000 per month (no DA) who resigns after completing 12 years of continuous service.

Tax exemption limits under Section 10(10)

Taxability of gratuity received by employees depends on the category of employment:

• Government employees: Gratuity received by central, state, and local government employees is 100% exempt from income tax without any monetary cap.
• Non-government employees covered under the Act: Gratuity is exempt up to the lowest of:
  1. Actual gratuity received.
  2. Statutory gratuity calculated using the 15/26 formula.
  3. The statutory ceiling limit of ₹20,00,000 (lifetime limit).
• Employees not covered under the Act: Calculated as (15 × Average 10-Month Salary × Years of Service) ÷ 30, subject to the same ₹20 Lakh lifetime ceiling.

Frequently asked questions

Is the 5-year continuous service rule mandatory?

Yes. Under Section 4(1) of the Payment of Gratuity Act, an employee must complete at least 5 years of continuous service with an organisation. The only statutory exceptions are termination due to death or permanent disablement, where gratuity is paid regardless of completed tenure.

Can an employer pay more than ₹20 Lakh gratuity?

Yes. The Act specifies the minimum statutory gratuity an employer must pay. Employers can offer higher gratuity amounts as part of company policy. However, any amount received above the statutory ₹20 Lakh lifetime limit is taxable at your applicable slab rate.

Is gratuity calculated on CTC or Basic salary?

Gratuity is calculated strictly on Basic Salary plus Dearness Allowance (DA). Allowances such as HRA, special allowance, medical reimbursements, and performance bonuses are excluded from the calculation.

What happens to gratuity if an employee resigns?

If an employee has completed 5 years of continuous service, gratuity is payable upon resignation, retirement, superannuation, or voluntary retirement. The employer must disburse the gratuity within 30 days of the last working day.

Can an employer forfeit gratuity?

Gratuity can only be forfeited if the employee's services were terminated for disorderly conduct, acts of violence, moral turpitude, or proven financial loss caused to the employer, and only to the extent of the damage caused.

Related career & retirement tools

• EPF Calculator — project your Employee Provident Fund retirement corpus alongside gratuity benefits.
• In-Hand Salary Calculator — see how gratuity and PF deductions affect your monthly take-home salary.
• Retirement Corpus Calculator — evaluate your total retirement savings including gratuity and superannuation funds.