Gratuity Calculator

Gratuity Calculator — What You're Actually Owed After Years of Service

Most employees know gratuity exists. Very few know exactly how it's calculated, what salary figure enters the formula, or why the number their employer quotes sometimes doesn't match what they expected. These gaps have real financial consequences — especially for employees approaching 5 years of service or negotiating a full and final settlement.

The Formula and Why It Uses 26, Not 30

Gratuity under the Payment of Gratuity Act 1972 is calculated as: (Last Drawn Basic + DA) × 15 × Years of Service ÷ 26

The 26 in the denominator represents the number of working days in a month — not calendar days. On a ₹60,000 monthly Basic + DA with 10 years of service, the correct gratuity is ₹3,46,154. Using 30 days instead of 26 understates the payout by over 13%. If your employer quoted you a lower number, this is likely the reason — verify which denominator they used. business-standard

For employers not covered under the Payment of Gratuity Act, a different formula applies: (Last Drawn Salary × 15 × Years of Service) ÷ 30. This produces a lower payout and applies to establishments with fewer than 10 employees.

What "Last Drawn Salary" Actually Means

Only Basic salary and Dearness Allowance enter the gratuity formula. HRA, overtime, bonuses, commissions, and most other allowances are explicitly excluded. This is one of the most common sources of confusion — employees add up their full gross salary, apply the formula, and get a number their employer then disputes

If your CTC has a high Basic component, your gratuity will be meaningfully higher than a colleague with the same CTC but a lower Basic. This is another reason why the salary structure in your offer letter matters beyond the monthly take-home calculation.

The 5-Year Rule and Its One Hidden Exception

Gratuity is payable after 5 years of continuous service — defined as working at least 240 days in each of the preceding 12 months. Resignation, retirement, retrenchment, and superannuation all qualify. The five-year minimum does not apply in cases of death or permanent disablement — in those situations, gratuity is paid to the nominee or legal heir regardless of service length

There is also a rounding rule for the final year: if service in the last year exceeds 6 months, it rounds up to a full year. If it is exactly 6 months or less, it does not round up. Someone with 9 years and 8 months of service is treated as having completed 10 years. Someone with 9 years and 4 months is treated as having completed 9 years. On a ₹75,000 Basic + DA, that one-year difference changes the payout by approximately ₹21,923

Fixed-term employees gain gratuity eligibility after just 1 year of service under the Code on Social Security 2020, which came into effect in November 2025 — a significant departure from the earlier 5-year rule that applied to all categories

The ₹20 Lakh Cap and Tax Treatment

The maximum gratuity payable under the Payment of Gratuity Act is ₹20 lakh, unchanged since 2018. Even if the formula produces a higher figure for a long-serving senior employee, the statutory cap limits the payment to ₹20 lakh. Employers may pay additional ex-gratia amounts above this as a discretionary benefit, but are not legally required to do so

For private sector employees, gratuity received is exempt from income tax under Section 10(10) of the Income Tax Act up to ₹20 lakh. For government employees, the full gratuity amount is tax-free with no upper limit. The tax exemption applies to the actual gratuity received — not to ex-gratia payments above the statutory amount, which are taxable as income

When Your Employer Must Pay

The employer must pay gratuity within 30 days of the date it becomes payable. Delay beyond 30 days attracts simple interest at 10% per annum on the outstanding amount. If your employer is delaying your gratuity settlement, document the date of your last working day and formally apply in writing — this establishes the clock for the interest calculation

Who Is Covered

The Payment of Gratuity Act applies to every establishment employing 10 or more employees on any day during the preceding 12 months — regardless of sector, entity type, or ownership structure. This includes private limited companies, LLPs, startups, IT companies, and MNCs operating in India. Once an establishment crosses the 10-employee threshold, the Act continues to apply even if headcount subsequently falls below 10

Use FinBuddy's Gratuity Calculator to enter your Basic + DA, years of service, and employer type to get your exact statutory entitlement — so you walk into your full and final settlement knowing the precise number you're owed.