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Gratuity calculator for India
Work out gratuity from last drawn basic + DA and length of service, using the 15/26 formula under the Payment of Gratuity Act or the half-month formula for employers not covered by it.
The gratuity formula
Gratuity is a lump sum paid when an employee leaves after long service: on resignation, retirement, termination, death or disablement. For employers covered by the Payment of Gratuity Act, 1972, it is 15 days' wages for every year of service. A month is treated as 26 working days.
"Wages" here means basic pay plus dearness allowance. HRA, bonus, overtime and other allowances are left out.
Worked example
An employee leaves after 7 years and 8 months. Last drawn basic + DA is ₹40,000, and the employer is covered by the Act.
- Service counted: 8 months is more than 6, so it rounds up to 8 years.
- Gratuity per year: ₹40,000 × 15 ÷ 26 = ₹23,076.92.
- Gratuity: ₹40,000 × 15 ÷ 26 × 8 = ₹1,84,615.38, rounded to ₹1,84,615.
If the employer were not covered, only the 7 completed years would count, using the half-month formula: ₹40,000 × 15 ÷ 30 × 7 = ₹1,40,000.
Who is eligible
Under the Act, gratuity becomes payable after 5 years of continuous service. The 5-year condition does not apply when employment ends because of death or disablement. In those cases gratuity is paid for the service actually completed, to the employee or their nominee.
The Code on Social Security, 2020, which replaces the Act, was brought into force from 21 November 2025. It lets fixed-term employees claim gratuity after 1 year of service on a proportionate basis. Rules are still being notified by the Centre and the states, so confirm how this applies before settling a fixed-term employee's dues.
The Act covers shops, factories and other establishments that employ 10 or more people. Once covered, an establishment stays covered even if headcount later falls below 10.
The ₹20 lakh ceiling and tax
The maximum gratuity under the Act is ₹20 lakh. For income tax, gratuity received by a non-government employee is exempt up to the lowest of three amounts: the formula amount, ₹20 lakh and the gratuity actually received. Anything above that is taxed as salary. Gratuity paid to government employees is fully exempt.
The half-month formula matters mainly for tax. Where the employer is not covered, the exempt part is capped at half a month's average salary for each completed year, again up to ₹20 lakh.
Limits of this calculator
- It assumes continuous service. Breaks, unauthorised absence or transfers between group companies can change the count.
- Seasonal establishments and piece-rated workers use a different wage basis.
- Under the Code on Wages, if excluded allowances exceed 50% of total pay, the excess is added back to wages. That can raise the basic + DA used for gratuity. Check the notified rules for your state.
- An employer may pay more than the formula by policy. This tool shows the statutory minimum.
Swastik Payroll does not calculate gratuity, but it keeps the salary history and dates of joining you need for it. See salary management for versioned salary records. Gratuity often sits inside CTC: the CTC to in-hand calculator shows how. The leave encashment calculator covers the other lump sum usually paid at exit.
Gratuity calculator FAQs
Why divide by 26 and not 30?
The Act treats a month as 26 working days, excluding four weekly offs. So 15 days' wages is 15/26 of monthly wages. The 15/30 figure applies only under the half-month formula for employers outside the Act.
Does 4 years and 8 months count as 5 years?
The part-year rule applies to the amount, not to eligibility. Once an employee qualifies, 4 years 8 months would be counted as 5 years. Whether service short of 5 full years meets the eligibility condition has been argued in courts, so take advice on individual cases.
Is gratuity paid on resignation?
Yes, if the employee has completed 5 years of continuous service. It is also paid on retirement, termination, death or disablement.
Can an employer pay more than ₹20 lakh?
Yes. ₹20 lakh is the most the Act requires. An employer may pay more under its own policy, but the amount above the exempt limit is taxable.
Results are estimates for planning. Statutory rates, ceilings and tax rules change; check the current notifications or consult your CA before using a figure for payroll or tax filing.
Stop calculating payroll by hand
Swastik Payroll applies these rules to every employee automatically, straight from attendance, and produces payslips and PF/ESIC files.