What is Gratuity?
Gratuity is a financial reward paid by employers to employees upon leaving the company after completing at least five years of continuous service. It is a recognition of long-term service and is governed by the Payment of Gratuity Act, 1972 in India.
Gratuity Calculation Formula
For employees covered under the Gratuity Act, the formula is:
Gratuity = (15 x Last Drawn Salary x Years of Service) / 26
- Last Drawn Salary = Basic Salary + Dearness Allowance (DA)
- 15 = Days of salary per year of service
- 26 = Working days in a month
- Years of Service = Completed years only (no rounding up)
Eligibility Criteria
- Minimum 5 years of continuous service with the employer
- Applicable to private and public sector employees
- Gratuity is paid at the time of resignation, retirement, or death
- Maximum tax-free gratuity is Rs. 20 lakhs as per latest rules
How to Use the Gratuity Calculator
Simply input your last drawn monthly salary (Basic + DA) and your total completed years of service. The calculator will show the estimated gratuity amount you are eligible to receive as per the standard formula.
Frequently Asked Questions (FAQs)
What is gratuity?
It is a one-time payment made by the employer to an employee in appreciation of their services when they retire or resign after completing five years.
Is gratuity applicable before 5 years?
Generally no, but in the case of death or disability, gratuity may be paid even before 5 years of service.
How is gratuity taxed in India?
Gratuity up to Rs. 20 lakhs is tax-free under Section 10(10) of the Income Tax Act. Any amount above this is taxable as income.