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Gratuity Calculator

This Gratuity Calculator lets you calculate Gratuity Tax Exemption. Gratuity is the amount of payment made by an employer to an employee in appreciation of the past services rendered by the employee, which is received at the time of retirement or in the event of death. The maximum gratuity tax exemption that an employee can avail of is Rs. 20,00,000.

Gratuity-Exemption is dependent upon two criteria:

  • Status of Employee, i.e., whether Government Employee or Non-Government Employee.
  • Whether the employee is covered under Gratuity Act, 1972 or not.

What is gratuity?

It is the amount received by the salaried person from their employer as a mark of recognition for their long-term service to the organization. An employee who has worked in an organization for a minimum period of 5 years is eligible for gratuity.
But not everyone is aware that gratuity is part of our salary. Gratuity is a reward paid by the employer to Employee for services rendered by him. In simple words, it is a retirement benefit received by an employee when he leaves his job.

Who gets Gratuity?

An employee who completed 5 or more years of service is eligible for gratuity. This condition of 5 years of service is not applicable in case of death or any disability of an employee.

When is the gratuity received?

After completing five years of continuous service, you will be eligible to receive the gratuity benefit. It is payable:

  • On Superannuation (or) Retirement.
  • On your Resignation (or) Termination (the gratuity can be rejected in case the termination is on account of the misconduct of the employee)
  • On death or Disablement due to accident or disease. (the sum of gratuity will be paid to the nominee or legal heir, in this case, continuous service of five years is not applicable in this case)

Is the amount of gratuity received my Income?

Gratuity received by you on your retirement or during your service period is taxable under the head "Income from Salary. In case of the death of an employee, Gratuity will be paid to the legal heir/nominee of an employee which is taxable under the head” Income from other sources".

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How to calculate gratuity tax treatment?

Gratuity is taxable when it is received under the head Income from salary. An employee can claim an exemption maximum of up to Rs. 20,00,000. However, the calculation of gratuity varies according to various categories of employees as follows:

You can use our free Gratuity calculator to calculate your exemption amount.

Tax treatment
Government employee Fully Exempt
Non-government employee covered under Payment of gratuity act 1972 Least of the following:
  • Actual Gratuity received
  • Rs. 20,00,000
  • No. of completed years of service or part thereof in excess of 6 month * 15/26* salary last drawn
Meaning of Salary = Basic Salary + D.A
Non-government employee not covered under Gratuity Act 1972 Maximum exemption from tax –

Least of the following:

  • Actual Gratuity received
  • Rs. 20,00,000
  • Half of Average salary * completed year of service (part of the month not considered
  • Average salary means average of salary in last 10 months preceding the month of retirement
Meaning of Salary = Basic Salary + D.A + percentage wise fixed commission on turnover

FAQs on Income Tax Calculation in India

Q Am I eligible for gratuity if my tenure of service is 4 years and 6 months?

No, an employee will be eligible for gratuity only if he serves for at least 5 years in the same company. However, there is a Madras high court ruling which states that an employee is eligible for gratuity only if he completed 240 days in the fifth year.

Tenure of 5 years of service is not applicable in case of death or any disability of an employee. Still confused? Need an expert's opinion? Contact us

Q Do the employer have a right to forfeit gratuity even after completing 5 years of service?

An employer has a right to forfeit gratuity in case an employee is being terminated due to misconduct or any other act of violence.

Q Which establishments are covered under Gratuity Act?

All establishments where 10 or more workers are employed on any day of the preceding 12 months are covered under this act.
Both commercial and non-commercial establishments like hospitals and educational institutes are covered under the act.

Q Whether employees under contract basis are eligible for gratuity?

Yes, Contractual employees are also eligible for gratuity. A contractor is responsible for paying gratuity to employees. In case the Contractor denies it, responsibility arises on the principal employer.

Q What is the time limit for payment of gratuity?

The employer is responsible for determining the gratuity and paying the same within 30 days of the gratuity becoming payable.

Q How do I nominate a person to receive gratuity in case of death?

After completing one year of service, an employee is eligible to file a nomination in Form F. Download Form F

Q Is gratuity eligible for 5 years or 4.8 years?

Employees have to serve at least 5 years of service to be eligible for gratuity: Employees who have completed 5 years of service in the same company are eligible for gratuity. However, the condition is not applicable in situations like the death or disablement of an employee.

Q How much is gratuity in CTC?

The laws says that employees who have worked for a full year get 15 days of pay as gratuity, but not more than ₹10 lakh in total. However, seasonal workers get 7 days of pay for each season as gratuity. The gratuity amount is calculated as 4.81 percent of the basic salary according to the Payment of Gratuity Act 1972.

Q How to calculate retirement Gratuity?

Retirement gratuity is calculated based on a specific formula in India. The formula for calculating retirement gratuity is as follows:

Gratuity = (Last Drawn Salary + Dearness Allowance) × Number of Completed Years of Service × 15 / 26

Q What is 15 and 26 in gratuity formula?

The numbers 15 and 26 in the gratuity formula pertain to the factors used for calculating gratuity in India. Gratuity is a statutory benefit provided to employees by their employers as a form of recognition and appreciation for their long and meritorious service. The formula for calculating gratuity is as follows:

Gratuity = (Number of years of service) × (Last drawn salary + Dearness Allowance) × 15 / 26

Here's the breakdown of the numbers:

  • 15: This number represents the number of working days in a month. The formula assumes that a month consists of 30 days, and 15/30 is used to calculate half of the month's salary.
  • 26: This number represents the number of working days in a year, considering a year as consisting of 12 months, each with 30 days (12 months * 2 half-months per month = 24 half-months). An additional 2 days are added to account for the rest days in a year (30 days - 28 days = 2 days).

So, when you calculate gratuity, you consider 15/30 to represent half a month and 26/30 to represent a full year's worth of working days. These factors are used to determine the gratuity amount based on the length of service and the last drawn salary of the employee.

Q Is gratuity calculated on basic salary?

Yes, gratuity in India is typically calculated based on the employee's basic salary and dearness allowance (DA) components. The formula for calculating gratuity is as follows:

Gratuity = (Last Drawn Salary + Dearness Allowance) × Number of Completed Years of Service × 15 / 26

In this formula, "Last Drawn Salary" refers to the basic salary and dearness allowance that the employee was receiving at the time of retirement or resignation. These components are used to determine the gratuity amount, with the assumption that the employee's contribution to these components increases with the length of service.

Q How to calculate gratuity for 10 years?

To calculate gratuity for 10 years of service in India, you can use the following formula:

Gratuity = (Last Drawn Salary + Dearness Allowance) × 10 × 15 / 26.