Gratuity Calculator
Gratuity Calculator online.
Gratuity Calculator — How to Calculate Your Gratuity (2025 Guide)
If you’re leaving a job or planning long-term retirement savings, you’ll want to know how much gratuity you’re entitled to. A Gratuity Calculator applies the statutory formula and gives an instant estimate of your gratuity payout — based on your last drawn salary, years of service, and the rules that apply to your employer.
What is gratuity?
Gratuity is a statutory lump-sum benefit paid by an employer to an employee in recognition of long service and good conduct. In India, the Payment of Gratuity Act provides the framework for calculating and paying gratuity for covered establishments. Employers and employees both rely on gratuity as an important retirement benefit.
:contentReference[oaicite:0]{index=0}Who is eligible for gratuity?
Under the Payment of Gratuity Act, an employee becomes eligible for gratuity after five years of continuous service with the same employer. There are some exceptions (for example, death or disability may allow earlier entitlement). Check your specific employer rules and the Act for edge cases.
:contentReference[oaicite:1]{index=1}The official gratuity formula (what calculators use)
The standard formula used for employees covered under the Act is:
Gratuity = (Last drawn basic salary + dearness allowance) × 15/26 × Number of completed years of service
Why 15/26? The law defines gratuity at the rate of 15 days’ wages for each completed year of service. Many calculators use 26 as the number of working days in a month to convert “15 days’ wages” into a monthly fraction (15/26). Different organizations may use a 30-day month (15/30), but the 15/26 approach is the conventional statutory method widely used by online calculators and payroll teams.
:contentReference[oaicite:2]{index=2}Step-by-step: How to use a gratuity calculator
- Enter your last drawn basic salary (include dearness allowance (DA) if applicable). Do not include HRA, special allowances, or bonuses unless they form part of ‘basic + DA’ per your employer’s rules.
- Enter your completed years of service. Most calculators use completed years (round down fractional years) — e.g., 14 years 10 months = 14 completed years.
- Choose the divisor (15/26 is standard; some private employers use 15/30 — the tool should allow both).
- Click “Calculate” — the tool will show the gratuity amount and, in many calculators, the tax-exempt portion.
Example (quick): Last drawn basic + DA = ₹40,000; service = 12 years; using 15/26 →
Gratuity = 40,000 × 15/26 × 12 = ₹2,769,230 approx → actually ₹2,76,923 (check rounding rules)
Note: Many payroll teams round the final gratuity amount to the nearest rupee and follow employer policy for rounding years (only completed years count under the Act).
:contentReference[oaicite:3]{index=3}Worked examples (clear)
Example 1 — Private company employee
- Last drawn basic + DA: ₹30,000 per month
- Completed service: 10 years
- Formula: 30,000 × 15/26 × 10 = 30,000 × 0.576923 × 10 = ₹1,73,076.9 → rounded to ₹1,73,077
Example 2 — Using 15/30 convention
- Last drawn basic + DA: ₹25,000
- Completed service: 8 years
- If employer uses 15/30: 25,000 × 15/30 × 8 = 25,000 × 0.5 × 8 = ₹1,00,000
Always confirm which divisor (26 or 30) your employer uses. The statutory Act specifies 15 days per year; the divisor is an administrative convention to convert days to monthly wages. Many authoritative calculators and banks use 15/26.
:contentReference[oaicite:4]{index=4}Statutory ceiling and recent updates
The Payment of Gratuity Act includes a maximum monetary ceiling on gratuity payable under the Act. Historically the ceiling has been revised from time to time. Recently, the central government issued notifications raising or clarifying limits for certain government employees. For example, central government civilian employees have had a higher notified limit (reported as ₹25 lakh for specified central employees effective Jan 1, 2024). Private-sector tax exemption and ceiling rules may differ — read the specific official notification or consult payroll/tax advisors for your case.
:contentReference[oaicite:5]{index=5}Tax treatment: is gratuity taxable?
Gratuity enjoys special tax treatment under the Indian Income Tax Act. For government employees, gratuity received is fully exempt. For other employees covered under the Act (and many private sector employees), a portion of gratuity is tax-exempt subject to limits under Section 10(10). As of recent guidance, the commonly cited tax-exempt limit for many non-government employees has been ₹20 lakh (this has been the standard exemption amount used by many tax guides). However, notifications and limits can change, especially for certain categories of government employees — so always check the current tax guidance or consult a tax expert.
:contentReference[oaicite:6]{index=6}Important rules & edge cases
- Completed years only: The Act normally counts only completed years of service for gratuity (some employers credit one year if the worker has served for 6 months or more in the last year — check employer policy and the Act’s fine print).
- Death or disablement: In case of death or permanent disability, gratuity may be payable even if the five-year condition isn’t met — again, the Act provides special provisions.
- Payment timelines: Employers must pay gratuity within the time specified by law; delayed payments can attract interest and litigation in courts or labour tribunals.
- Not all employers are covered: Payment of Gratuity Act applies to establishments meeting certain thresholds (number of employees and sectors); for uncovered employers, gratuity rules may be per company policy or employment contract.
How employers compute gratuity in payroll systems
Payroll systems implement the formula programmatically. Inputs include last drawn basic pay & DA, completed years, and the divisor (15/26). Systems also enforce statutory ceilings and generate reports with the gratuity amount and the taxable/exempt portions for tax filing.
How to build a simple Gratuity Calculator (logic)
If you want a tiny calculator you can embed on a page or in Excel, here’s the logic:
- Input: last_drawn_basic_da (monthly), years_of_service (completed years), divisor_choice (26 or 30), statutory_ceiling (if applicable).
- Compute: gratuity_raw = last_drawn_basic_da × (15 / divisor_choice) × years_of_service
- Apply ceiling: gratuity_payable = min(gratuity_raw, statutory_ceiling) if ceiling applies
- Calculate tax exemption portion (per Section 10(10) limits and rules) and taxable part = gratuity_payable − exempt_amount
In Excel the formula looks like:
=MIN( (B1*(15/C1)*INT(B2)), D1 )
Where B1=last drawn basic+DA, B2=years of service, C1=26 (or 30), D1=statutory ceiling (optional).
Common FAQs (quick answers)
1. How many years must I work to get gratuity?
Typically five completed years with the same employer to be eligible under the Act; there are exceptions (death or disablement) where eligibility may arise earlier. :contentReference[oaicite:8]{index=8}
2. What is the exact formula?
Gratuity = (Last drawn basic + DA) × 15/26 × Completed years of service (this is the standard statutory approach used by most calculators). :contentReference[oaicite:9]{index=9}
3. Does gratuity attract income tax?
Part of gratuity is tax-exempt under Section 10(10) subject to prescribed limits. For government employees the rules are different; private sector exemption limits (for many employees) have commonly used ₹20 lakh as the benchmark in recent guidance — but confirm current rules for your category. :contentReference[oaicite:10]{index=10}
4. Who pays gratuity?
The employer pays gratuity; if an employer is covered by the Act and fails to pay, the employee can claim before the appropriate authority or court. :contentReference[oaicite:11]{index=11}
Practical tips before you use a gratuity calculator
- Confirm what your employer considers “last drawn salary” — some include DA, others may include qualifying commissions if specified by policy.
- Always use completed years — do not include months unless your employer’s policy allows conversion.
- Check any statutory ceiling that applies to your employer (and whether your employer is covered by the Act).
- Get a pay-slip or HR confirmation of the last drawn basic + DA before final calculation.
- Use a calculator that shows both gross gratuity and the tax-exempt portion for clarity.
Where to get official help and what to read
- Payment of Gratuity Act (official texts and local labour department guidance) — for statutory rules and enforcement. :contentReference[oaicite:12]{index=12}
- Recent government notifications or circulars for changes to ceilings (central government notifications may change the payable ceiling for specific employee categories). See recent news/official gazette entries. :contentReference[oaicite:13]{index=13}
- Reliable payroll/tax guidance sites and major banks’ gratuity calculators for quick checks. :contentReference[oaicite:14]{index=14}
Summary
A Gratuity Calculator is an easy, reliable way to estimate your end-of-service benefit. Use the standard formula ((basic+DA) × 15/26 × years) as a baseline, confirm employer specifics (divisor used, ceilings, inclusion of DA/commission), and check current tax-exemption limits before you act on any figure. When in doubt, ask your HR or a tax professional — and keep a copy of your payslips and service records for the most accurate calculation.
:contentReference[oaicite:15]{index=15}Author: Team iLovePDFGo — Practical finance & payroll guides, 2025.