ReckonBoxHow the gratuity calculator works
Gratuity is a lump sum your employer pays you for long service, and this calculator works out both what you are owed and how much of it escapes tax under Section 10(10). Enter your last drawn basic plus DA, your years and months of service, and whether your employer is covered by the Payment of Gratuity Act, and it applies the right formula, rounds the service the way the law does, and splits the result into a tax-free and a taxable part.
Start with the default. On a Rs 60,000 last drawn salary over 15 years at a covered employer, the gratuity comes to Rs 5,19,231, all of it tax-free because it's under the Rs 20,00,000 exemption ceiling. The same service at a not-covered employer pays Rs 4,50,000, so the type of employer, which most calculators bury, changes the figure by nearly Rs 70,000.
The two formulas
For an employee covered by the Act, gratuity is 15 times the last drawn salary times the years of service, divided by 26; for a not-covered employer the divisor is 30. Salary here means basic pay plus dearness allowance, not gross salary or CTC. The 26 stands for the working days in a month, so the covered formula pays 15 days of wages for each year, and the not-covered version works out to half a month's salary a year.
| Employer | Formula | On Rs 60,000, 15 years |
|---|---|---|
| Covered by the Act | 15 x salary x years / 26 | Rs 5,19,231 |
| Not covered | 15 x salary x years / 30 | Rs 4,50,000 |
Firms with 10 or more employees are covered, which is most salaried jobs. The calculator shows both figures so you can see the gap, and it uses the one that matches your employer for the tax split.
How the years are rounded
For a covered employer, a part-year of 6 months or more counts as a full year, so 15 years and 7 months is treated as 16 years, while 15 years and 4 months stays at 15. This rounding is worth real money at the margin, and it's the step most tools skip by asking only for a whole number of years. A not-covered employer is stricter: only completed years count, and the extra months are dropped.
Enter your service as years and months and the calculator credits the right number, then shows the years it counted. Six months is the hinge, so an exit planned a little past a half-year mark can be worth a full extra year of gratuity under a covered employer.
How much is tax-free
The tax-exempt gratuity is the least of three amounts: the gratuity you actually received, Rs 20,00,000, and the formula amount. Whatever you receive above that least figure is taxable as salary. This least-of-three test is the part almost every calculator explains in prose but never computes, so the split between exempt and taxable is left to you.
The Rs 20,00,000 ceiling is a lifetime cap across all your jobs, raised from Rs 10,00,000 by the 2018 amendment to the Act, so any tool still showing Rs 10 lakh is out of date. On a Rs 3,00,000 salary over 25 years the formula gives Rs 43,26,923, but the exemption stops at Rs 20,00,000, which leaves Rs 23,26,923 taxable. The calculator marks which of the three amounts binds, and you can carry the taxable figure into the income tax calculator to see the tax on it.
Eligibility, and the government exception
You usually need 5 years of continuous service to qualify for gratuity, but this minimum is waived if you leave because of death or disablement. Set the exit reason and the calculator drops the 5-year gate, since the law pays gratuity regardless of tenure in those cases. For a normal resignation or retirement below 5 years, no gratuity is due.
Government employees are treated differently on tax: gratuity received by a central, state or local government employee is fully exempt, with no ceiling. This tool computes the private-sector least-of-three, so if you're a government employee, read the formula amount as fully tax-free.
What this does not cover
This calculator works out the standard gratuity and its Section 10(10) exemption from the figures you enter. It assumes the Rs 20,00,000 private-sector ceiling and does not model the separate death-cum-retirement gratuity rules for central government staff, which use a different calculation. It also does not check your employer's exact coverage or any better terms in your contract, since an employer can always pay more than the formula. Tax rules change with each Budget, so treat the figure as a close estimate and, for a payout that matters, have your HR team or a chartered accountant confirm it.
Frequently asked questions
What is gratuity? Gratuity is a lump sum an employer pays you for long service, due after at least 5 years under the Payment of Gratuity Act, 1972. For a covered employer it is 15 days of your last drawn basic plus DA for each year of service, so a Rs 60,000 salary over 15 years earns Rs 5,19,231.
What is the gratuity formula? For an employee covered by the Act, gratuity is 15 times the last drawn salary times the years of service, divided by 26, where salary is basic plus DA. For a not-covered employer the formula divides by 30 instead of 26, which is half a month of salary for each year, so the covered formula pays a little more.
How are the years of service rounded? For a covered employer, a part-year of 6 months or more counts as a full year, so 15 years 7 months is treated as 16 years, while 15 years 4 months stays at 15. For a not-covered employer only completed years count and the extra months are dropped, which the calculator applies once you enter the months.
How much gratuity is tax-free? The tax-exempt gratuity is the least of three amounts: the gratuity you actually received, Rs 20,00,000, and the formula amount. On a Rs 3,00,000 salary over 25 years the formula gives Rs 43,26,923, but the exemption caps at Rs 20,00,000, so Rs 23,26,923 is taxable in that case.
Is government employee gratuity taxed? Gratuity received by a central, state or local government employee is fully exempt from income tax, with no cap. This calculator handles private employers under the least-of-three rule; a government employee can treat the whole formula amount as tax-free.
Do I need 5 years to get gratuity? You usually need 5 years of continuous service to qualify, but this minimum is waived if you leave because of death or disablement, when gratuity is payable regardless of tenure. Set the exit reason to death or disablement and the calculator drops the 5-year requirement.
What salary is used for gratuity? The salary for gratuity is your basic pay plus dearness allowance, not your gross salary or CTC. For a covered employer it is the last drawn basic plus DA, while a not-covered employer uses the average of the last 10 months, so enter that average if your employer is not covered.
Is the maximum gratuity Rs 10 lakh or Rs 20 lakh? The tax-exempt ceiling is Rs 20,00,000, raised from Rs 10,00,000 by the 2018 amendment to the Act, so any tool still showing Rs 10 lakh is out of date. The cap is a lifetime limit across employers, not a per-job figure.