What is Gratuity?
Gratuity is a monetary benefit given by an employer to an employee for services rendered to the company. It is a lump sum payment made at the time of retirement, resignation, or termination.
In India, gratuity rules are mandated by the Payment of Gratuity Act, 1972. Any organization with 10 or more employees must pay gratuity to eligible staff.
Gratuity Calculation Formula
The formula depends on whether your organization is covered under the Gratuity Act or not.
-
Covered Employees:
Gratuity = (Last Drawn Salary × 15 × Years of Service) / 26
(Here, 26 represents the number of working days in a month). -
Not Covered Employees:
Gratuity = (Last Drawn Salary × 15 × Years of Service) / 30
Note: Salary = Basic Pay + Dearness Allowance (DA).
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Tax Rules for Gratuity (2025)
| Employee Category | Tax Exemption Limit |
|---|---|
| Government Employees | Fully Tax Exempt |
| Private (Covered by Act) | ₹20 Lakhs |
| Private (Not Covered) | ₹20 Lakhs |
Note: The tax exemption limit was increased from ₹10 Lakhs to ₹20 Lakhs in 2018.
Eligibility Rules
- Minimum Service: 5 Years of continuous service.
- Exceptions: The 5-year rule does not apply in case of death or permanent disablement. The nominee receives the gratuity.
How to Use This Calculator
- Enter your Basic Salary + DA (exclude HRA and allowances).
- Enter your total years of service.
- Select whether your employer is covered under the Gratuity Act (most private companies are).
- Get the exact gratuity payout instantly.