Gratuity is a financial "thank you" mandatory by Indian law given by an employer to an employee for rendering continuous services for at least 5 years. Use our Gratuity Calculator to check exactly how much parting cash you are legally entitled to upon resigning, retiring, or getting laid off.
How to calculate Gratuity?
1. Basic Salary: Check your final month's payslip. Find the "Basic Salary" and "Dearness Allowance (DA)" components and add them together. Do NOT use your Gross or Net In-Hand salary.
2. Tenure: Accurately input your total years and extra months of service. (Example: If you worked for 6 years and 8 months, input 6 Years and 8 Months).
3. Act Coverage: Select whether your company is covered under the Payment of Gratuity Act, 1972. (Rule of thumb: Any factory, mine, oilfield, port, railway, or standard company having 10 or more employees is strictly legally bound by the Act).
The 15/26 Formula (For Covered Entities)
By Indian law, the formula to calculate gratuity is: (15 / 26) * Last Drawn Basic Salary * Tenure
- 15: Represents 15 days of wages for every completed year of service.
- 26: Represents the number of working days in a month (excluding 4 Sundays).
- Rounding Rule: If you work for 6 months or more in your final year, it is legally rounded up to a full year. (e.g., 5 years and 7 months = 6 years of gratuity paid).
Frequently Asked Questions
According to rulings by the Madras High Court, if an employee completes 240 days (approx. 4 years and 8 months) in their fifth year, it is continuous service and they are legally eligible for Gratuity. Most ethical HRs will honor this.
It is massively tax friendly! For government employees, it is 100% tax-free. For private sector employees covered under the Act, the gratuity amount is completely tax-exempt up to a hard ceiling of ₹20,000,000 (Twenty Lakh Rupees) in your entire lifetime.
No, not if you resigned or retired honorably. An employer can only legally forfeit your gratuity if you were explicitly terminated for "riotous or disorderly conduct or any other act of violence" or "offense involving moral turpitude" (like stealing company funds or fraud).
Yes. If an employee dies or becomes completely disabled due to a disease/accident, the rigid "5-year" requirement is immediately waived. The gratuity is calculated based on years worked and given to the nominated family member.
If a tiny startup (< 10 employees) voluntarily pays gratuity, the formula uses 30 days instead of 26: (15 / 30) * Salary * Completed Years. Furthermore, any fractional months are strictly ignored (e.g., 5 years 11 months = only 5 years counted).