Free tool
Gratuity Calculator
Compute the gratuity amount under the Payment of Gratuity Act with last drawn salary and years of service. Includes the statutory cap and the tax-exempt portion.
If additional months are greater than 6, the year rounds up.
Establishments with 10+ employees are covered under the Payment of Gratuity Act.
- Formula
- (₹50,000 × 15 × 10) / 26
- Effective years (rounded)
- 10
- Tax-exempt portion
- ₹ 2,88,462
- Total gratuity payable
- ₹ 2,88,462
A worked example, end to end
Scenario
A private-sector employee leaves after 12 years 8 months of continuous service. Last drawn Basic + DA = ₹60,000 per month. Employer is covered under the Act.
Computation
- Effective years. 8 months > 6, round up to 13 years.
- Divisor. Covered under the Act, so 26.
- Formula. (₹60,000 × 15 × 13) / 26 = ₹4,50,000.
- Cap check. ₹4,50,000 < ₹25 lakh statutory cap, so no clipping.
- Tax-exempt portion. Full ₹4,50,000 exempt (within the cap).
- Final amount payable. ₹4,50,000.
- If service were 11 years 5 months. Effective years = 11 (5 ≤ 6). Gratuity = ₹3,80,769.
Free download
F&F settlement template (Excel).
A full-and-final settlement worksheet: gratuity, leave encashment, last-month salary, notice-period adjustments, deductions, and net F&F payable. Pre-built formulas, just paste your numbers.
How gratuity is calculated
Gratuity is a statutory payment to an employee on separation, payable after 5 years of continuous service. The formula depends on whether the employer is covered under the Payment of Gratuity Act, 1972.
Covered: gratuity = (Last drawn salary × 15 × Years) / 26
Not covered: gratuity = (Last drawn salary × 15 × Years) / 30
Tax treatment
- Government employees: fully exempt under Section 10(10).
- Private, covered: exempt up to the least of actual gratuity, statutory formula or ₹25 Lakhs.
- Private, not covered: exempt up to the least of actual gratuity, half-month-salary formula or ₹25 Lakhs.
Gratuity FAQ
Common questions.
Who is eligible for gratuity?
An employee who has completed 5 years of continuous service is eligible. The 5-year condition is waived in case of death or permanent disability. Establishments with 10 or more employees on any day in the preceding 12 months are covered under the Payment of Gratuity Act.
What counts as "salary" for the formula?
Basic pay plus Dearness Allowance, as last drawn. HRA, conveyance, bonuses, overtime and other allowances are not included. For commission-based employees, the average of the preceding 3 months may apply per case law.
How are partial years treated?
If the additional service over the last completed year is more than 6 months, the year rounds up. So 10 years 7 months is treated as 11 years, while 10 years 5 months stays at 10 years.
Is gratuity taxable?
For government employees gratuity is fully exempt. For private employees, the exempt amount is the least of (a) actual gratuity received, (b) the statutory formula and (c) the ₹25 Lakhs cap. Any excess is taxable as salary income.
When must the employer pay gratuity?
Within 30 days of the gratuity becoming payable. Delayed payment attracts simple interest at the rate notified by the Central Government from the due date.
Is gratuity payable on resignation?
Yes, if 5 years of continuous service is complete. Gratuity is payable on resignation, retirement, superannuation, death or disability. The trigger is separation, not the cause. Termination for misconduct may forfeit gratuity under Section 4(6).
Can an employer withhold gratuity?
Only in cases of (a) services terminated due to negligence causing damage (forfeit to the extent of damage), or (b) services terminated for wilful destruction of property, riotous conduct, or moral turpitude (full or partial forfeit). Disciplinary process must be followed.
How is gratuity calculated for fixed-term contract employees?
After the 2017 amendment, fixed-term contract employees are eligible for gratuity pro-rata from day one (no 5-year condition). This is significant for project-based workers and FTC employees who would otherwise miss out.
Does sickness leave or LWP count as continuous service?
Sickness leave and authorised LWP up to 1 year do not break continuous service. Strike, lock-out, lay-off and authorised absence are also not breaks. The Act counts any year in which the employee actually worked at least 240 days (190 for mines) toward "completed year".
How does the employer fund gratuity?
Most large employers set up a Gratuity Trust with LIC or another insurer, contributing actuarial-determined amounts annually. The trust pays out gratuity on separations. This converts a lumpy P&L liability into a smooth expense and is tax-deductible.
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