Gratuity Calculator Formula & How to Use It

This gratuity calculator works out the lump-sum gratuity amount an employee is entitled to under the Indian Payment of Gratuity Act, 1972. You enter your last drawn basic salary plus dearness allowance, your years of service, and the number of months worked in the final year; the calculator returns the gratuity amount using the standard 15/26 formula. The result is the taxable (or exempt, up to limits) gratuity you would receive upon leaving a company after at least five years of continuous service.

Formula

The statutory gratuity formula is:

Gratuity = (Last drawn basic salary + DA) × 15 × Number of years of service / 26

Where:

• Last drawn basic salary + DA – the basic pay and dearness allowance in the month before leaving (in ₹).
• 15 – represents 15 days of salary for each completed year of service.
• Number of years of service – completed years, with a fraction of a year (months/12) used when the service is more than 6 months in the last year.
• 26 – the number of working days assumed in a month (excluding Sundays and other holidays).

The formula assumes 26 working days per month, so 15/26 of a month’s salary is paid for each year. For example, if your last drawn basic + DA is ₹30,000 and you have 10 complete years and 6 months, the total service is 10.5 years. The gratuity is ₹30,000 × 15 × 10.5 / 26 = ₹1,81,730.77, which rounds to ₹1,81,731.

Worked Example

Using the default values from the calculator:

• Last drawn basic + DA = ₹30,000
• Completed years = 10
• Months in last year = 6

Step 1: Calculate total service in years: 10 + (6/12) = 10.5 years.

Step 2: Apply the formula: Gratuity = 30,000 × 15 × 10.5 / 26.

Step 3: Multiply: 30,000 × 15 = 4,50,000; then 4,50,000 × 10.5 = 47,25,000.

Step 4: Divide by 26: 47,25,000 / 26 = 1,81,730.77.

Step 5: Round to the nearest rupee: ₹1,81,731.

The calculator shows the same result because it uses the same arithmetic.

When Is Gratuity Paid?

Gratuity is a statutory benefit under the Payment of Gratuity Act, 1972, in India. It is payable when an employee leaves after at least five years of continuous service. The five-year rule is waived in case of death or disablement. The Act applies to factories, mines, oilfields, plantations, ports, railways, shops, and other establishments with 10 or more employees on any day in the preceding 12 months. Once covered, the establishment remains covered even if the employee count later drops below 10.

The employer pays gratuity at the time of resignation, retirement, termination, or on death/disability. It is a lump-sum payment, not a monthly pension. The calculation uses the last drawn basic salary and dearness allowance, not the gross salary, so commissions, bonuses, and other allowances are excluded.

How to Choose the Right Values

To get an accurate estimate, you need three pieces of information from your payslip and service record:

• Basic salary and DA – find the “Basic” and “Dearness Allowance” lines on your latest payslip. Some payslips combine them; if not, add the two. Do not include HRA, special allowance, or performance pay.
• Completed years of service – count full years from your joining date to your last working day. For example, if you joined on 1 April 2014 and leave on 31 March 2024, that is 10 years exactly.
• Months in the last year – if you have more than 6 months in your final year, count them as a fraction. For instance, if you completed 10 years and 7 months, you enter 10 years and 7 months (the calculator uses 10 + 7/12). If you have 10 years and 5 months, you enter 10 years and 5 months (the fraction is ignored because it is less than 6 months).

Note that the Act rounds down to the nearest year if the fraction is less than 6 months, and rounds up to the next year if it is 6 months or more. The calculator follows this by using the exact months in the formula, which is equivalent.

Common Mistakes and Misconceptions

One frequent error is using gross salary instead of basic + DA. Gratuity is calculated only on basic pay and dearness allowance, so using gross inflates the result. Another mistake is ignoring the 6-month rounding rule. For example, if you have 10 years and 5 months, you should use 10 years, not 10.4167. The calculator handles this correctly when you enter the months.

A common misconception is that gratuity is paid only after 5 years of continuous service in the same company. That is true, but there is an exception: if you die or become disabled during service, the 5-year condition is waived, and the gratuity is paid to your nominee or legal heir.

Another misunderstanding is that gratuity is always tax-free. Under Indian tax law, gratuity received by government employees is fully exempt. For non-government employees covered by the Act, the exemption is the least of: the actual gratuity received, ₹20 lakh (as of 2024), or the calculated amount using the formula. Any excess is taxable as “income from salaries.” The calculator gives you the statutory amount, which you can compare with the exemption limit.

Gratuity for Employees Not Covered by the Act

If you work for an establishment not covered by the Payment of Gratuity Act (e.g., a small shop with fewer than 10 employees), the employer may still pay gratuity voluntarily, but the formula is not mandated. In such cases, the employer often follows the same 15/26 formula, but they could also use a different basis, such as 15 days’ salary per year based on 30 working days (i.e., 15/30). The calculator is designed for the statutory formula, so if your employer uses a different method, the result may differ.

For employees of central or state government, gratuity is calculated under the Central Civil Services (Pension) Rules, which use a different formula – typically one-fourth of the last drawn emoluments for each completed six-month period, capped at 16.5 times the emoluments. This calculator does not apply to government employees.

Limits and Exemptions

The Payment of Gratuity Act does not set a maximum gratuity amount, but the Income Tax Act does. As of the 2024-25 assessment year, the maximum tax-exempt gratuity for non-government employees is ₹20 lakh. Any amount above that is taxable. The government revises this limit periodically, so check the current limit at the time of retirement.

If you receive gratuity from more than one employer during your career, the exemption limit applies per employer, not in aggregate. However, if you switch jobs and receive gratuity from a previous employer, that amount is taxable in the year you receive it, unless you roll it over to a new employer’s gratuity fund (which is rare).

How to Use the Result

The calculator gives you the exact statutory gratuity you should receive. Use it to:

• Verify the amount your employer offers when you resign or retire.
• Plan your finances, knowing that gratuity is a lump sum that may be partly taxable.
• Compare with the tax exemption limit to estimate your tax liability.

If your employer calculates a lower amount, check your basic salary and service period. Employers sometimes exclude DA or miscount years. If the discrepancy persists, you can raise a dispute with the controlling authority under the Act.

Frequently Asked Questions

Is gratuity calculated on basic salary or gross salary?

Gratuity is calculated only on the last drawn basic salary plus dearness allowance (DA). It does not include HRA, special allowance, bonuses, or commissions. If your payslip shows a separate DA, add it to the basic; otherwise, use the basic only.

What if I have completed 4 years and 11 months of service?

You are not eligible for gratuity because you have not completed 5 years of continuous service. The Act requires a minimum of 5 years, except in cases of death or disablement. Some employers may pay ex gratia, but it is not legally required.

How is the 6-month rounding applied?

If you have more than 6 months in your final year, it counts as a full year. For example, 10 years and 7 months becomes 11 years. If you have exactly 6 months, it counts as a full year. If you have 5 months, it is ignored. The calculator lets you enter months, and the formula uses the exact fraction, which is equivalent to rounding.

Is gratuity taxable?

Gratuity is tax-exempt up to ₹20 lakh for non-government employees covered by the Act. Any amount above that is taxable. Government employees get full exemption. The exemption is the least of the actual amount, the statutory limit, or the calculated amount using the formula.

Can I get gratuity if I resign before 5 years?

Generally no, unless the resignation is due to death or disability. However, some company policies may provide gratuity earlier, but it is not a legal right. The Act mandates payment only after 5 years of continuous service.

Does gratuity apply to probation period?

Yes, the probation period counts as part of continuous service if it is with the same employer. The Act does not exclude probation. However, any break in service may affect continuity, so check your appointment letter.

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in salary | Last drawn basic + DA | ₹ | 30000 | 0
in years | Completed years of service | years | 10 | 0
in months | Months in last year | months | 6 | 0
out gratuity | Gratuity amount | ₹ | (salary * 15 * (years + months / 12)) / 26 | 0
out months_total | Total service in months | months | years * 12 + months | 0