Gratuity Calculator

Under the Payment of Gratuity Act, 1972, an employee becomes eligible for gratuity after completing 5 years of continuous service with the same employer. This 5-year requirement is relaxed only in cases of death or disablement of the employee, where gratuity becomes payable regardless of the length of service.

"Continuous service" has specific legal definitions around permitted breaks in service - periods such as sick leave, authorized leave, lay-off, or a strike/lock-out not due to the employee's own fault do not break the continuity of service for gratuity purposes.

The statutory formula is: Gratuity = (Last drawn Basic + DA) × 15 × Years of Service ÷ 26. The 26 represents the number of working days considered in a month, and 15 represents 15 days' wages payable for each completed year of service.

For employees covered under the Payment of Gratuity Act, gratuity received is tax-exempt up to ₹20,00,000. This ceiling was raised from ₹10,00,000 via a 2018 government notification. The exemption actually allowed is the least of three amounts: the actual gratuity received, this statutory ceiling of ₹20 lakh, or the amount calculated per the Act's formula.

Any amount received above ₹20 lakh is taxable as salary income in the year of receipt. Government employees are treated differently - they receive full tax exemption on gratuity with no ceiling at all.

Gratuity is a statutory right once an employee is eligible, but Section 4(6) of the Act allows it to be wholly or partially forfeited in specific circumstances. If an employee is terminated for an act of willful omission or negligence causing damage or loss to the employer's property, gratuity can be forfeited to the extent of the damage caused.

Gratuity can also be wholly forfeited if the employee's services are terminated for riotous or disorderly conduct, an act of violence, or an offence involving moral turpitude committed during the course of their employment.