Gratuity calculator

The gratuity formula in plain English

Gratuity is paid on resignation, retirement, death or disability. The formula depends on whether the employer is covered by the Payment of Gratuity Act 1972. For a covered employer, the payable amount is last drawn basic plus DA times 15, divided by 26, times the number of completed years of service, where any service of more than 6 months in the final year is rounded up to a full year. The 26 is the number of working days in a month under the Act, which is why the formula does not use the full 30.

For an uncovered employer, the usual formula substitutes 30 in the denominator and does not round up the final year. The payable number is therefore smaller at the same wage and the same years of service. This page uses the uncovered rule only when the employer coverage select is set to that option.

The ₹20 lakh ceiling and the tax split

The Central Government has set a ceiling of ₹20,00,000 on the amount payable under the Act. If the formula gives a number above that, the employer pays ₹20,00,000 and the rest is simply not payable under the Act, though a higher amount can be paid voluntarily under a contract. The Code on Social Security 2020 keeps the same ceiling and allows the Central Government to revise it by notification without an Act amendment.

For a private employee, the exempt amount is the least of the actual gratuity received, the ₹20,00,000 ceiling and the formula-based gratuity. The rest is taxable at slab. A government employee gets full exemption on any gratuity received. The calculator applies the private-employee rule by default and prints the exempt and taxable slices separately.

Worked example you can check

Take a last drawn basic plus DA of ₹50,000 a month, service of 10 years and 8 months, employer covered by the Act. The 8 months in the final year is more than 6, so completed years for the formula is 11. The formula is 50,000 times 15, divided by 26, times 11, which is 3,17,307.69. The cap does not bind and the full amount is exempt under the private-employee rule: 15 times 50,000 times 11, divided by 26, is the formula-based cap that the exempt figure is tested against. Taxable amount is zero.

In each covered row with months above 6, the completed years rounds up by one; in the not-covered row the 8 months is ignored. The tax split for a private employee is triggered only when the actual received is above the formula amount and above ₹20 lakh.

Service of less than 5 years

The usual eligibility for gratuity under the 1972 Act is 5 continuous years of service. Service below 5 years does not qualify, with narrow exceptions in the Act for death and disability where the eligibility rule does not apply. The calculator still shows the arithmetic because a reader entering 4 years and 11 months may want to see the number the formula would produce, and because the Code on Social Security 2020 is expected to reduce the threshold for fixed-term employees.

Treat the amount for less than 5 years as information only. For a regular employee, gratuity is not payable until the 5-year mark; the formula figure is useful only for a mental sense of what the current position is worth once the threshold is crossed.

Labour Codes: what changed from 21 November 2025

The Code on Social Security 2020 came into force on 21 November 2025. The wage definition in section 2(88) of the Code is wider than the 1972 Act's basic plus DA, and applies prospectively from that date. Once an employer re-maps the salary structure, the base used for gratuity on service rendered after 21 November 2025 is likely to rise, which will lift the gratuity amount on the same cash wage. This calculator takes a single last drawn figure and does not model the transition.

Fixed-term employees are entitled to gratuity pro rata on the completion of the term under the Code. Legal commentary is split on whether section 53 explicitly sets a 1-year threshold or leaves it to a pro-rata reading. State to a fixed-term employee that the exact threshold needs checking against section 53 of the Code and the ministry FAQs; the calculator still prints the formula figure for the service entered.

How much of the final answer is wage, and how much is years

Doubling the wage doubles the gratuity, since wage enters the formula as a direct multiplier. Doubling the years of service doubles the gratuity as well, provided the result stays below the cap. Beyond the cap the payable amount is held at ₹20,00,000 regardless of further service or further wage; at that point only a voluntary excess from the employer changes the figure. The curve in the panel chart shows this plateau for the inputs you set.

A practical use of the page is to run two scenarios: the current wage and years, and a projected wage at the retirement date with the years that will have accumulated. The gap between the two numbers is the gratuity that time and salary growth are adding to the final payout, before the cap binds.

What this calculator leaves out

• The wider wage base under the Code on Social Security 2020, applied prospectively from 21 November 2025 once employer salary structures are re-mapped.
• Gratuity on death or disability, which has a modified eligibility rule and may follow a different formula under service agreements.
• Voluntary gratuity above the ₹20 lakh ceiling that a contract or a company policy allows. The calculator applies the statutory ceiling.
• Income tax calculation on the taxable slice, including any surcharge and cess. For the slab math, run the income tax calculator on the full year's figures once it is live.
• Any employer-run gratuity trust mechanics or an insurer-backed group gratuity scheme. The payable amount to the employee is the same.

Frequently asked questions

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