Gratuity calculator
Enter your last drawn monthly salary (basic + DA) and your years of service. Salary excludes bonuses and other allowances.
How gratuity is worked out
Gratuity is a lump-sum payment made by an employer on an employee's exit, governed by the Payment of Gratuity Act, 1972. For employers covered by the Act, the formula is:
Gratuity = (15 × last drawn salary × years of service) ÷ 26
"Last drawn salary" means basic pay plus dearness allowance. 26 is used because the Act treats a month as 26 working days. For employers not covered by the Act, the divisor is 30 instead of 26. When counting years under the Act, service of more than six months in the final year is rounded up to a full year; under the not-covered formula, only completed years count.
At least five years of continuous service is generally required, except in cases of death or disablement. The amount received is exempt from income tax up to Rs 20,00,000 in aggregate over a lifetime for covered employees; the excess is taxable.
Sources: Payment of Gratuity Act, 1972 (Sections 4 and 10); Income-tax Act, 1961 — Section 10(10). Verify against your employer's coverage, your last drawn salary and current rules before relying on the figure. This tool is an estimate.
Worked example
Last drawn salary (basic + DA) Rs 40,000, 7 years 6 months of service, employer covered by the Act. Service rounds to 7 years (the final six months do not exceed six months). Gratuity = 15 x 40,000 x 7 / 26 = Rs 1,61,538, fully within the Rs 20 lakh exemption limit.
Frequently asked questions
How is gratuity calculated in India?
For employers covered by the Payment of Gratuity Act, gratuity is 15 days' wages for every completed year of service: (15 x last drawn salary x years of service) / 26. Last drawn salary means basic pay plus dearness allowance. For employers not covered by the Act, the divisor is 30 instead of 26.
How many years of service are needed for gratuity?
An employee generally needs at least five years of continuous service to receive gratuity. This condition does not apply in case of death or disablement. When calculating years under the Act, a period of more than six months in the final year is rounded up to a full year.
How much gratuity is tax-free?
For employees covered by the Payment of Gratuity Act, gratuity received is exempt from income tax up to Rs 20,00,000 in aggregate over a lifetime. Amounts above that are taxable. The limit is applied across all employers over your career.
Is gratuity paid by the employer or the employee?
Gratuity is paid entirely by the employer. It is a lump sum paid on leaving a job after the qualifying service period, and it is not deducted from the employee's salary.
When gratuity applies
Gratuity is a leaving benefit, not an annual one. It generally needs five years of continuous service, unless the exit is due to death or disablement. If your employer is covered by the Payment of Gratuity Act, the calculation uses 15 days of wages for each completed year, with the last year rounded up when more than six months are served. If the employer is not covered, the divisor is 30 and only completed years count. The payout is tax-free up to Rs 20 lakh across your career. Check your appointment letter and your service record before you rely on the number.
Gratuity: service, salary and limits
Two numbers decide most payouts: how long you served and what your last drawn salary was. Salary here means basic pay plus dearness allowance, not the full cost to company. Service is counted in completed years, and when the employer is covered by the Act, a part year longer than six months is treated as a full year. The Act applies to establishments that meet its coverage rules, which is why the divisor changes between fifteen over twenty-six and fifteen over thirty. If you leave before five years, gratuity is normally not payable, but the rule does not apply when the exit is due to death or disablement. The amount is paid by the employer, usually with the final settlement. On tax, the payout is exempt up to twenty lakh rupees over a working life, so most employees pay nothing on it. Keep your appointment letter, the last salary revision letter and the relieving letter.
Records that settle a gratuity question
Gratuity rarely goes wrong on the formula. It usually goes wrong on the facts. Was the person covered by the Act? How many years were completed? What was the last salary? Keep three papers. The appointment letter sets the terms. The latest revision letter sets the salary. The relieving letter sets the exit date. Together they answer most questions. If service is close to five years, check the exact dates. A few weeks can change the outcome. If the employer is not covered by the Act, the calculation differs, so confirm that first. Ask for the working in writing. Then compare it with this estimate.
About this tool
Written and maintained by the AccoNova editorial and payroll team, and last reviewed on (first published ). This is a free public calculator and an estimate, not a payslip, a tax return or professional advice. Figures depend on your salary structure, exemptions, state rules and current statutes — verify before relying on a result. AccoNova publishes product guidance and educational resources; no independent qualified statutory reviewer is claimed.
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