Gratuity Calculator (India)

Gratuity is a lump-sum payment an employer makes to an employee as a reward for continuous service, payable under the Payment of Gratuity Act, 1972. It applies to any establishment that has employed 10 or more people on any day in the preceding 12 months — and once covered, an establishment stays covered even if headcount later drops below 10. Most startups past their earliest hiring stage are covered.

Minimum eligibility is 5 years of continuous service with the same employer. This is waived if employment ends due to death or disablement — those cases aren't calculated by this tool and should be handled with HR/legal guidance.

Gratuity = (Last drawn Basic + DA) × 15/26 × Completed years of service

For employees covered under the Act, 15/26 represents 15 days' wages for every completed year, using 26 as the number of working days in a month. Any period of service beyond a completed year that exceeds 6 months rounds up to a full year (e.g. 7 years 7 months counts as 8 years; 7 years 4 months counts as 7 years).

For establishments NOT covered under the Act, there's no statutory formula — employers commonly use 15/30 of the last drawn Basic + DA per year of service instead, as a matter of policy or contract, not law. This calculator applies that common convention when you select 'not covered', but confirm the actual basis against your employment contract or company policy.

Statutory cap

₹20 lakh — no employer is legally required to pay more, regardless of what the formula computes. An employer may voluntarily pay more as ex-gratia.

Tax exemption (Section 10(10))

For private-sector employees, gratuity received is tax-exempt up to ₹20 lakh — the same figure as the statutory cap, so a capped payout is fully tax-free. Government employees get full exemption with no cap.

1. Gratuity becomes payable within 30 days of an employee's exit (resignation, retirement, termination, death, or disablement).
2. Employers with 10+ employees must obtain gratuity insurance from an approved insurer (typically LIC) or set up an approved gratuity trust to fund the liability — self-funding out of current cash flow is legally permitted but creates a growing unfunded liability as headcount and tenure grow.
3. Delayed payment attracts interest, and the Act allows for penalties on wilful non-payment.
4. Gratuity is a statutory liability that should be provisioned for in financial statements as employee tenure accrues — not treated as a one-time cost only at the point of exit.