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How to use the gratuity calculator
- 1Enter your last drawn monthly basic salary plus dearness allowance — allowances and CTC extras do not count.
- 2Enter completed years of service, and any extra months in the second field.
- 3Confirm whether your employer is covered by the Gratuity Act — establishments with ten or more employees are.
- 4Read the payable amount; the counted years show how the rounding rule treated your part-year.
The formula, decoded
Under the Payment of Gratuity Act, the payout is 15 days' wages for every year of service, and the Act defines a month as 26 working days — hence the famous 15/26: gratuity = (15 ÷ 26) × last drawn monthly basic+DA × years of service. Ten years on a final basic+DA of ₹50,000 comes to about ₹2.88 lakh.
Two refinements do the quiet work. First, 'wages' means basic plus dearness allowance only — HRA, bonuses and reimbursements are excluded, which is why gratuity on a large CTC can look smaller than expected. Second, a final part-year of six months or more rounds up to a full year: ten years and seven months counts as eleven, ten years and four months as ten. The calculator applies the rounding and shows you the counted years.
Employers not covered by the Act — establishments under ten employees — conventionally pay 15/30 instead of 15/26 and count only completed years. The toggle above switches formulas, and the difference it makes is visible immediately.
Eligibility, the ceiling, and tax
Gratuity becomes payable after five years of continuous service with one employer, on leaving — resignation, retirement or termination alike. The five-year condition is waived entirely on death or disablement, in which case it is paid to the nominee. Judicial rulings have treated four years and 240 days as satisfying the condition in many cases, so if you are just short of five years, the exact dates are worth a conversation with HR rather than an assumption.
The statutory ceiling is ₹20,00,000: where the formula produces more — long service on a senior salary does it easily — the Act obliges only ₹20 lakh, and this calculator caps and flags it. Employers may pay above the cap voluntarily; the excess is simply taxed as salary.
Within the ceiling, gratuity received under the Act is exempt from income tax for private-sector employees (government employees' gratuity is fully exempt). It is one of the few genuinely tax-free payouts left, which is why the capped figure matters more than it first appears.
Using the number when changing jobs
Gratuity is the piece of compensation people forget when weighing an offer near a service anniversary. Leaving at four years and seven months forfeits the entire accrual; staying past the five-year line vests it. If the calculator shows a few lakh at stake, the start date of the new job is worth negotiating by a few months.
The formula's dependence on the last drawn salary cuts the other way: every future increment retroactively raises the gratuity on all your past years. A raise from ₹50,000 to ₹60,000 basic with ten years behind you adds about ₹58,000 to the eventual payout — a fact that belongs in any staying-versus-leaving arithmetic.
When the payout does arrive, it lands alongside leave encashment and final settlement in a tax year where your income may be unusual. The Income Tax Calculator linked below shows what the year actually looks like under both regimes.
Frequently asked questions
Am I eligible before five years?
Generally no — five years of continuous service is the threshold, waived on death or disablement. Courts have accepted four years and 240 days in many cases, so near-misses deserve a check of exact dates rather than resignation on an assumption.
Which salary goes into the formula?
Last drawn basic pay plus dearness allowance — nothing else. HRA, special allowances, bonuses and employer PF do not count, which is why the gratuity on a ₹30 lakh CTC depends entirely on how much of it is basic.
How does the six-month rounding work?
Only the final part-year rounds: six months or more counts as a full extra year, less than six months is dropped. Seven years eight months counts as eight years; seven years five months as seven.
Is gratuity taxable?
Under the Act and within the ₹20 lakh lifetime ceiling, it is exempt for private-sector employees, and fully exempt for government employees. Anything an employer pays beyond the ceiling is taxed as salary.
Does the calculator send my salary anywhere?
No — the formula runs in your browser and nothing you enter is transmitted or kept.