How Gratuity Calculator Works
Gratuity is a lump sum amount paid by employer to employee as appreciation for service. Governed by Payment of Gratuity Act 1972. Minimum 5 years continuous service required (exception: death/disability). Calculator uses different formula based on whether employer is covered under Gratuity Act.
For Companies Covered under Gratuity Act 1972:
Gratuity = (Last Salary × 15 × Years of Service) ÷ 26
Where:
Last Salary = Basic + DA (last drawn)
15 = 15 days wages per year
26 = working days in a month
For Companies NOT Covered (only optional):
Gratuity = (Last Salary × 15 × Years) ÷ 30
Example Calculation
Scenario: Last drawn salary ₹60,000, 12 years service, covered under Act
Gratuity = (60,000 × 15 × 12) ÷ 26
= 1,08,00,000 ÷ 26
= ₹4,15,385
Tax exempt up to ₹20 lakh = Fully tax-free!
Gratuity Eligibility
- Continuous service of 5 years with same employer
- Exception: No 5-year requirement in case of death or disability
- 4 years 240 days counted as 5 years for gratuity
- Applicable to employees of factories, mines, plantations, ports, and establishments with 10+ employees
- Both private and government employees eligible
- Available on retirement, resignation, termination, death, or disability
Year Calculation
| Service Period | Counted As |
|---|
| Less than 6 months | Excluded |
| 6 months or more | Counted as full year |
| Example: 7 years 4 months | 7 years |
| Example: 7 years 8 months | 8 years |
Tax Treatment
- Government Employees: Entire gratuity is tax-free (no upper limit)
- Private Sector (covered under Act): Tax-free up to ₹20 lakh (lifetime limit)
- Private Sector (not covered): Tax-free up to lower of: ₹10L, half-month salary × years, actual gratuity
- Above limit: Excess taxed at slab rate as 'income from other sources'
Maximum Gratuity
Government has capped maximum gratuity at ₹20 lakh. Even if formula calculation gives more, employer is only liable to pay ₹20 lakh under Payment of Gratuity Act. Employer can voluntarily pay more (treated as ex-gratia, taxed as salary).
FAQs
Q: When should I receive gratuity?
Within 30 days of leaving job. Employer must pay gratuity within 30 days from when it becomes payable. After that, simple interest applicable.
Q: Can company refuse to pay gratuity?
Only for misconduct causing damages OR riotous/disorderly conduct. Even then, only forfeiture for actual damage caused. Otherwise, gratuity is mandatory.
Q: Is gratuity payable on resignation?
Yes, if you have completed 5 years of continuous service. Resignation, retirement, termination - all eligible (only fault-based termination has special rules).
Q: What if employer doesn't pay?
File complaint with Controlling Authority (Labour Commissioner) within 30 days. They can recover gratuity + 10% interest. Cases usually resolved in 3-6 months.