Gratuity is a statutory monetary benefit provided by employers to employees in recognition of continuous long-term service. This calculator computes your gratuity entitlement under the Payment of Gratuity Act, 1972 and determines tax exemption limits under Section 10(10).
🏢 Gratuity Calculator
Calculate statutory gratuity benefits for covered and non-covered services.
Gratuity Calculator: Payment of Gratuity Act & Tax Exemption
📋 What, Why, and Who Should Use It?
🔍 What is this Calculator?
An employment retiral benefit calculator that computes statutory gratuity entitlement and tax-free limits based on last drawn salary and completed years of service.
⚡ Why is it Useful?
Helps employees resigning, retiring, or changing jobs verify their legal gratuity settlement and calculate tax exemptions up to ₹20 Lakhs.
👥 Who Should Use It?
Corporate employees completing 5 or more years of service, retirees, and human resources payroll specialists.
⚙️ How It Works & Calculation Formula
For employees covered under the Payment of Gratuity Act, 1972: Gratuity = (15 × Last Drawn Basic Salary + DA × Completed Years of Service) / 26. Completed service exceeding 6 months is rounded up to the next full year. For non-covered employees: Gratuity = (15 × Average Salary × Completed Years) / 30.
💡 Assumptions & Real-World Example
Assumes a minimum of 5 years of continuous service (unless separation is due to death or permanent disablement, where the 5-year requirement is legally waived).
📌 FAQs
1. What is the minimum service period to qualify for gratuity? ▼
An employee must complete a minimum of 5 continuous years of service with an establishment to qualify for gratuity upon resignation, retirement, or termination.
2. Is the 5-year service rule mandatory in all circumstances? ▼
No. The 5-year requirement is legally waived under the Payment of Gratuity Act in the event of an employee’s death or permanent disablement due to accident or disease.
3. What is the statutory tax exemption limit for gratuity in India? ▼
Under Section 10(10) of the Income Tax Act, gratuity received by private sector employees is tax-free up to a lifetime statutory ceiling of ₹20,00,000. Government employees receive 100% tax exemption.
4. Why is 26 used as the divisor in the gratuity formula? ▼
The divisor 26 represents the total working days in a month under the Act, treating Sundays as non-working days (30 calendar days minus 4 Sundays).
5. How is service tenure rounded off? ▼
For employees covered under the Act, if the remaining service tenure exceeds 6 months, it is rounded up to the next full year (e.g. 7 years and 7 months is counted as 8 years).
6. What components of salary are included in the gratuity calculation? ▼
Only Basic Salary and Dearness Allowance (DA) are included. Other allowances like HRA, special allowance, and performance bonuses are excluded from the calculation.
7. Can an employer pay more gratuity than the formula calculates? ▼
Yes. An employer can pay an amount higher than the statutory formula as a gesture of appreciation. However, any amount exceeding the ₹20 Lakh lifetime limit is taxable at the employee’s slab rate.
8. Can gratuity be withheld by an employer? ▼
Under Section 4(6) of the Act, gratuity can only be forfeited if the employee’s services were terminated for riotous conduct, moral turpitude, or wilful damage/destruction of employer property (to the extent of damage).
9. What is the timeline for employer gratuity payout? ▼
The employer must determine and disburse the gratuity within 30 days from the date it becomes payable. If not paid within 30 days, the employer is liable to pay simple interest as prescribed by the government.
10. Which establishments are covered under the Payment of Gratuity Act? ▼
The Act applies to every factory, mine, oilfield, plantation, port, railway company, shop, or commercial establishment in which 10 or more persons are employed on any day of the preceding 12 months.
