Gratuity Calculator – Check Your Retirement Benefits
Gratuity is a monetary benefit given by an employer to an employee as a token of appreciation for the services rendered to the organization. It is one of the important components of the salary structure and a significant retirement benefit. Our Gratuity Calculator helps you estimate the amount you will receive when you leave your job after five years of continuous service.
What is Gratuity?
Gratuity is a defined benefit plan governed by the Payment of Gratuity Act, 1972. It acts as a financial reward for employees who have served an organization for a long period. Unlike Provident Fund (PF), where both employee and employer contribute, gratuity is paid entirely by the employer.
Who is Eligible for Gratuity?
To be eligible for gratuity, an employee must meet the following criteria:
- He/she must be eligible for superannuation (retirement).
- He/she must have retired from the job.
- He/she must have resigned after continuous service of 5 years with the same employer.
- In case of death or disablement due to accident or disease, the 5-year rule is waived.
Gratuity Calculation Formula
The gratuity amount depends on the last drawn salary and the number of years of service. For employees covered under the Gratuity Act, the formula is:
Gratuity = (Last Drawn Salary × 15 × Years of Service) / 26
- Last Drawn Salary: Basic Salary + Dearness Allowance (DA).
- 15: Wages for 15 days are calculated for every completed year of service.
- 26: The number of working days in a month (excluding Sundays).
Tax Rules for Gratuity
The tax treatment of gratuity depends on the type of employee:
- Government Employees: Gratuity received by government employees (Central/State/Local) is fully exempt from tax.
- Private Sector Employees (Covered under Act): The least of the following is tax-exempt:
- Actual gratuity received
- ₹ 20 Lakhs
- 15 days' salary based on the last drawn salary for each year of service
Frequently Asked Questions (FAQs)
Is 5 years of service mandatory for gratuity?
Yes, completing 5 continuous years of service is mandatory to claim gratuity upon resignation or retirement. However, in case of death or disability, this condition does not apply.
What is the maximum tax-free gratuity limit?
As per the latest amendment, the maximum tax-free gratuity limit has been increased to ₹ 20 Lakhs for private sector employees.
Does Basic Salary include allowances?
For gratuity calculation, 'Salary' means Basic Pay plus Dearness Allowance (DA). It does not include HRA, special allowances, or bonuses.
What happens if I work for 4 years and 7 months?
If you have not completed 5 full years, you are generally not eligible for gratuity. However, regarding the rounding off of years: if you have worked for more than 6 months in the last year (e.g., 5 years 7 months), it is rounded up to the next year (6 years) for calculation, but only if you have already crossed the 5-year eligibility mark.
Is gratuity paid on CTC or Basic?
Gratuity is calculated on the Basic Salary + DA component of your salary structure, not on the total Cost to Company (CTC).
Disclaimer: This Gratuity Calculator provides an estimate based on the provisions of the Payment of Gratuity Act, 1972. The actual amount may vary based on company policies or if the organization is not covered under the Act. Please verify with your HR department.
