What is the formula for calculating gratuity?

For employees covered under the Act: Gratuity = (15 × Last Drawn Salary × Tenure) ÷ 26. For those not covered: Gratuity = (15 × Last Drawn Salary × Tenure) ÷ 30.

Is gratuity amount tax-free?

Gratuity received up to ₹20 Lakhs is entirely tax-exempt under Section 10(10) of the Income Tax Act. Any amount exceeding this limit is taxable as per your applicable income tax slab.

Am I eligible for gratuity if I resign after 4.5 years?

Generally, no. The Payment of Gratuity Act mandates a minimum of 5 years of continuous service to be eligible. The only exceptions are termination due to death or disablement.

Online Smart Gratuity Calculator

Smart Gratuity Calculator

Estimate your end-of-service employer benefits instantly with our high-precision gratuity projection tool.

Covered under Gratuity Act?

Yes, Covered No, Not Covered

Basic Salary

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Dearness Allowance (DA)

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Total Tenure

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Estimated Gratuity Payable

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Qualifying Years 0 Years

Tax Exempt Amount ₹0

Taxable Amount ₹0

Notice: Gratuity is typically payable only after completing 5 continuous years of service (exceptions exist for death/disablement).

Complete Guide to Gratuity Calculation

Gratuity is a monetary benefit offered by an employer to an employee for services rendered to the company. It serves as a financial reward for long-term loyalty and is governed by the Payment of Gratuity Act, 1972. Use our Smart Gratuity Calculator above to easily estimate your retirement or resignation corpus.

How is Gratuity Calculated?

The calculation differs slightly depending on whether your organization is covered under the Gratuity Act. Most organizations with 10 or more employees fall under the Act.

1. For Employees Covered Under the Act:

The calculation assumes 26 working days in a month. Any tenure exceeding 6 months is rounded up to the next full year.

Gratuity = (15 × Last Drawn Salary × Tenure) / 26

2. For Employees Not Covered Under the Act:

The calculation uses exactly 30 days for a month. Fractional months are strictly ignored (e.g., 5 years and 11 months is treated as 5 years).

Gratuity = (15 × Last Drawn Salary × Tenure) / 30

Note: "Last Drawn Salary" equals your Basic Salary plus Dearness Allowance (DA). Commissions are included only if they are a fixed percentage of sales.

Key Benefits of this Calculator

Precision: Automatically differentiates calculation logic based on Act coverage.
Tax Estimation: Instantly splits your gratuity into Tax-Exempt and Taxable portions based on the current ₹20 Lakhs ceiling set by the Income Tax Department.
Dynamic Rounding: Handles the complex "6-month rounding rule" automatically so you don't have to guess your qualifying years.

Frequently Asked Questions (FAQs)

When do I become eligible for Gratuity?

To be eligible for gratuity, an employee must complete at least 5 years of continuous service with the same employer. However, this condition is waived in cases where employment is terminated due to death or disablement.

Is Gratuity fully tax-free?

Gratuity is tax-exempt up to a lifetime maximum limit of ₹20 Lakhs under Section 10(10) of the Income Tax Act. Any amount received above this ₹20 Lakh limit is added to your regular income and taxed according to your applicable income tax slab.

Does notice period count towards the 5-year requirement?

Yes, your notice period is considered part of your continuous service. If your 5-year milestone falls within your official notice period, you remain legally entitled to the gratuity payout.

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