Gratuity Calculator

What is Gratuity and Who is Eligible?

Gratuity is a statutory lump-sum benefit that an employer pays to an employee as a token of appreciation for long and faithful service. Governed by the Payment of Gratuity Act 1972, it is one of the most important components of your retirement corpus — separate from PF and pension.

Eligibility requires a minimum of 5 continuous years of service with the same employer for regular employees. The Act applies to companies with 10 or more employees. If you leave a company just short of 5 years, you typically forfeit your gratuity entitlement (exceptions apply for death or disability). Note that fixed-term contract employees now have a shorter 1-year threshold under the 2025 Code on Social Security — see the dedicated section below. Use our PPF Calculator alongside this to plan your overall retirement savings beyond gratuity.

Gratuity Formula Explained

The formula under the Gratuity Act is: Gratuity = (Basic + DA) × 15/26 × Years of Service. The factor 15/26 represents 15 working days out of the 26 working days in a month (assuming a 6-day week, 4 weeks per month). For employees not covered under the Act, the formula changes to 15/30 (calendar month basis), which gives a slightly lower payout.

Note that only Basic Salary + DA is used — HRA, bonuses, and other allowances are excluded. This is why your gratuity may seem low relative to your total CTC. If your company restructures your salary with a low basic and high allowances, your gratuity payout suffers significantly.

Tax Treatment of Gratuity in India

Under the gratuity exemption provisions (Section 10(10) of the Income Tax Act 1961, carried forward under the Income Tax Act 2025 effective 1 April 2026), gratuity up to ₹20 lakh is fully tax-exemptfor employees covered under the Payment of Gratuity Act — a ceiling raised from ₹10 lakh back in 2019 and unchanged since. This means if your calculated gratuity is ₹15 lakh, the entire amount is tax-free. If it is ₹25 lakh, ₹20 lakh is exempt and ₹5 lakh is added to your income and taxed at your applicable slab rate.

Government employees enjoy complete tax exemption with no upper limit. For private sector employees not covered under the Act, the exemption is the least of: actual gratuity received, half-month salary for each completed year of service, or ₹20 lakh. Plan your tax liability using our Income Tax Calculator.

What Changed Under the Code on Social Security (2025)

The Code on Social Security 2020 came into effect on 21 November 2025, and it changed two things that directly affect this calculator's inputs. Fixed-term employees — staff on a defined-duration contract rather than open-ended employment — now qualify for pro-rata gratuity after just 1 year of service, instead of waiting out the old 5-year minimum. This closes a long-standing gap where contract and project-based staff rarely stayed long enough to ever earn gratuity.

The second change is a 50% basic-pay rule: for wage-linked statutory benefits like PF and gratuity, basic salary must now make up at least half of total CTC. Many companies had historically structured salaries with a low basic (30-40% of CTC) and the rest as allowances specifically to reduce gratuity and PF liability — this restructuring is no longer compliant where the new wage definition applies. If your employer adjusts your salary structure to meet this rule, your gratuity base (Basic + DA) increases even if your total CTC stays the same, since a larger share of it now legally counts as basic.

Who Needs a Gratuity Calculator?

• Employees nearing retirement — estimate the gratuity component of their final payout
• HR and payroll professionals — compute gratuity liability for provisioning and audits
• Employees switching jobs — understand how much gratuity they have earned so far
• Finance teams — project future gratuity liability for long-tenured employees
• Startup founders — understand gratuity obligations when scaling headcount beyond 10 employees

Real-World Gratuity Calculation Example

Example 1 — Covered under Gratuity Act: Ramesh has a basic salary of ₹60,000/month and DA of ₹5,000/month. He resigns after 20 years of service. Gratuity = (60,000 + 5,000) × 15/26 × 20 = ₹7,50,000. Since this is well below ₹20 lakh, the entire amount is tax-free.

Example 2 — High earner, long tenure: Priya earns ₹2,00,000/month basic and retires after 30 years. Gratuity = 2,00,000 × 15/26 × 30 = ₹34,61,538. Here, ₹20,00,000 is tax-exempt and ₹14,61,538 is taxable at her applicable income tax slab. Use our HRA Calculator to also maximise your tax savings during service.

Example 3 — Fixed-term employee under the 2025 rules: Aisha joins a media company on an 18-month fixed-term contract with a basic salary of ₹45,000/month and no DA. Under the pre-2025 rules she would have received nothing, since her contract ends well before the 5-year mark. Under the Code on Social Security, she now qualifies for pro-rata gratuity: (45,000) × 15/26 × 1.5 ≈ ₹38,942 — a meaningful new entitlement that didn't exist for contract staff before November 2025.

Why Being Browser-Based Matters

Salary data and service records are private. This gratuity calculator runs entirely in your browser — no data is sent to any server, stored in any database, or shared with any third party. You can safely enter your actual salary and years of service without any privacy concerns. There is no account creation required and the tool works instantly offline after the page loads.

Tips to Maximise Your Gratuity Payout

• Negotiate higher basic: Gratuity is calculated on basic+DA only — a higher basic directly increases gratuity
• Complete full years: Partial years are rounded down — ensure you complete each year fully
• Check Act coverage: Confirm with HR whether your company is covered under the Gratuity Act
• Track DA separately: If your company pays DA, include it accurately — it adds to your payout
• No resignation before 5 years: Wait until you cross the 5-year mark to preserve your gratuity entitlement
• Death or disability: If applicable, gratuity is paid even before 5 years — ensure your nominee details are filed
• Fixed-term staff, check your status: If you're on a defined-duration contract, confirm with HR whether the 2025 1-year pro-rata rule applies to you

Common Gratuity Questions and Misconceptions

Can an employer refuse to pay gratuity? No. If you meet the eligibility criteria (5+ years, covered establishment), gratuity is a legal right — not a discretionary payment. Employers who fail to pay can face penalties under the Act, including interest and imprisonment.

Does the 50% basic-pay rule apply retroactively? No — it changes how new or restructured salary offers must be split going forward. Existing employees don't automatically get a mid-cycle gratuity recalculation just because the rule came into force; the impact shows up at the next salary revision or appraisal cycle where the employer restructures pay to comply.

Does gratuity include bonus? No. Only Basic Salary and Dearness Allowance are included in the calculation. Annual bonuses, performance incentives, and variable pay are excluded. This is a common source of confusion when comparing expected vs actual gratuity payouts.

What if I work for multiple companies? Gratuity is calculated separately for each employer. There is no cumulative calculation across employers — each stint must independently meet the 5-year minimum.