Gratuity Calculator

What is gratuity?

Gratuity is a lump sum your employer pays you as a thank-you for long service. It is paid when you resign, retire or are laid off, and to your nominee if you die while in service. You do not contribute anything towards it; the whole amount comes from your employer.

It was governed by the Payment of Gratuity Act, 1972, and is now part of the Code on Social Security, one of the new labour codes. The basic formula stays the same.

Who is eligible for gratuity?

• You need at least 5 years of continuous service with the same employer.
• The five-year rule does not apply if you die or become disabled while in service; your gratuity is then paid to you or your nominee.
• Under the new labour codes, fixed-term employees qualify for gratuity after one year of service.
• Employers with 10 or more employees are covered by the law. Smaller employers can still pay gratuity if their policy allows it.

How is gratuity calculated?

If your employer is covered by the law, you get 15 days' salary for every year of service. A month is taken as 26 working days.

For example, with a last drawn salary of ₹50,000 and 10 years of service, your gratuity is 15 × ₹50,000 × 10 ÷ 26 = ₹2,88,462.

If your employer is not covered, gratuity is based on half a month's salary for each completed year, with a month taken as 30 days. The salary used is your average salary over the last 10 months.

With the same ₹50,000 salary and 10 years, this gives ₹2,50,000.

What counts as salary for gratuity?

Salary for gratuity means your basic pay plus dearness allowance (DA). Bonuses, overtime and most other allowances are left out.

The new labour codes add a safeguard: if the allowances left out come to more than half of your total pay, the extra is added back to your salary. This stops employers from keeping basic pay low to reduce gratuity, so check how your pay is split before you calculate.

How are years of service counted?

If your employer is covered, more than six months in your last year counts as a full year. So 6 years and 7 months counts as 7 years, and the ₹50,000 example gives ₹2,01,923. Six months or less is dropped.

If your employer is not covered, only completed years count, and any extra months are ignored.

Is gratuity taxable?

The ₹20 L limit applies over your whole working life, not per employer. If you have already had a tax-free gratuity from a past job, only the rest of the limit is available. Any gratuity above the limit is taxed as salary.

When is gratuity paid?

Your employer should pay gratuity within 30 days of it becoming due. If they delay, they owe you simple interest on it. If they refuse to pay, you can take the matter to the controlling authority under the labour law.

Frequently asked questions