Gratuity Calculator India

What is Gratuity in India?

Gratuity is a lump sum payment made by an employer to an employee in recognition of their long and meritorious service. It is a defined benefit plan, one of the many retirement benefits offered by employers to their employees. In India, gratuity payments are primarily governed by the Payment of Gratuity Act, 1972. This act ensures that employees receive a minimum gratuity amount upon fulfilling certain conditions, typically related to years of service.

Eligibility Criteria for Gratuity

• Continuous Service: An employee must have completed at least five years of continuous service with the same employer.
• Exceptions: The five-year rule is waived in cases of death or disablement of the employee, where gratuity becomes payable to the nominee or legal heir regardless of the service period.
• Applicability: The Act applies to factories, mines, oilfields, plantations, ports, railways, shops, or other establishments employing 10 or more persons.

Even if an establishment is not covered by the Act, some employers may still pay gratuity under their company policy or an individual contract.

How Gratuity is Calculated in India

For employees covered under the Payment of Gratuity Act, 1972, the formula is:

Gratuity = (Last Drawn Basic Salary + DA) × 15/26 × Years of Service

• Last Drawn Basic Salary + DA: This refers to the sum of the employee's basic salary and dearness allowance at the time of leaving service.
• 15/26: Represents 15 days' wages for every completed year of service, assuming a month has 26 working days.
• Years of Service: Any service period exceeding six months in the last year is considered a full year for calculation (e.g., 5 years and 7 months is counted as 6 years).

Taxability and Payment of Gratuity

• Tax Exemption: Gratuity received by government employees (Central/State/Local authority) is fully exempt from income tax.
• Private Sector: For private-sector employees, the least of the following three amounts is exempt from tax:
1. Actual gratuity received.
2. ₹ 20,00,000 (Twenty Lakhs INR).
3. 15 days' salary for each completed year of service (calculated as specified by the Act).
• Payment: Gratuity is typically paid upon superannuation, retirement, resignation, death, or disablement. It must be paid within 30 days of becoming due.