Gratuity Calculator - Employee Gratuity Entitlement: Complete Guide
A Gratuity Calculator helps employees calculate the gratuity amount they are entitled to receive from their employer upon leaving a job after completing 5 or more years of continuous service. Gratuity is a statutory benefit under the Payment of Gratuity Act, 1972, applicable to establishments with 10 or more employees. Our free gratuity calculator accurately computes your gratuity based on your last drawn salary and years of service.
What is Gratuity and Who is Eligible?
Gratuity is a lump-sum payment made by an employer to an employee as a token of appreciation for services rendered. It is mandatory under the Payment of Gratuity Act, 1972 for:
- Companies with 10+ employees
- Employees who have completed at least 5 years of continuous service (4 years 240 days = 5 years for shift workers)
- Applicable on resignation, retirement, death, or disablement
Gratuity is computed based on the last drawn basic salary + dearness allowance (DA), not the gross salary.
Gratuity Formula and Calculation
For employees covered under the Payment of Gratuity Act:
Gratuity = (Last drawn Basic + DA) × 15/26 × Years of completed service
The 15/26 ratio means 15 days salary for every year of service (26 working days per month).
For employees NOT covered under the Act:
Gratuity = (Last drawn Basic + DA) × 15/30 × Years of service
Example: An employee with 10 years of service and ₹50,000 basic salary:
- Covered: ₹50,000 × 15/26 × 10 = ₹2,88,462
- Not covered: ₹50,000 × 15/30 × 10 = ₹2,50,000
Gratuity Tax Exemption Rules
Gratuity received is tax-exempt up to certain limits:
- Government employees: Entire gratuity is tax-free
- Private sector (Act covered): Least of three is exempt: (a) Actual gratuity received, (b) ₹20 lakhs, (c) 15 days salary × years of service
- Private sector (not Act covered): Least of: (a) Actual gratuity, (b) ₹20 lakhs, (c) Half month salary × years of service
The ₹20 lakh exemption limit was enhanced from ₹10 lakhs to ₹20 lakhs in 2018. Gratuity above the exemption limit is added to income and taxed at your slab rate.
Pro Tips
- ✓Negotiate gratuity terms in your employment contract — some companies offer enhanced gratuity beyond statutory requirements
- ✓Keep records of your appointment letter, salary slips, and service continuity proofs to avoid gratuity disputes
- ✓If you change jobs before 5 years, explore if your employer offers any ex-gratia payment
- ✓Gratuity is a right, not a gift — follow up with HR proactively if payment is delayed beyond 30 days
- ✓Consider gratuity as part of your total compensation while comparing job offers