Gratuity Calculator (Payment of Gratuity Act)
Calculate tax-exempt statutory gratuity for continuous service exceeding 5 years under the 15/26 formula.
Gratuity Calculator
Calculate your statutory gratuity entitlement under the Payment of Gratuity Act, 1972. Includes 15/26 working day calculation, 5-year eligibility threshold, 6-month service rounding rule, and Section 10(10) tax exemptions.
Salary & Service Details
Gratuity Entitlement & Tax Exemption
Future Service Tenure Milestone Projections
See how your statutory gratuity payout grows if you continue serving with the same employer over future horizons.
| Service Milestone | Projected Tenure | Monthly Basic + DA (₹) | Total Gratuity Payable (₹) | Tax-Exempt Portion (₹) | Taxable Portion (₹) | Exemption Status |
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Complete Guide to Gratuity under Indian Labor Laws
Gratuity is a statutory monetary benefit provided by an employer to an employee in recognition of continuous, dedicated service. It is governed by the Payment of Gratuity Act, 1972 across private and commercial sectors in India.
1. The 15/26 Statutory Calculation Formula
For employees covered under the Payment of Gratuity Act, the statutory formula is defined as:
Why 26? The Supreme Court of India in Digvijay Woollen Mills v. Mahendra Prataprai Buch (1980) affirmed that a month consists of 26 working days after deducting 4 Sundays. Thus, daily wage is calculated by dividing monthly emoluments by 26, multiplied by 15 days of wages for every year of completed service.
2. The 6-Month Rounding Rule
Under Section 4(2) of the Act, if an employee has served for a fraction of a year exceeding 6 months (> 6 months), that fraction is rounded up and counted as one full year of service. For example:
- 6 years 7 months: Rounded up to 7 years for gratuity computation.
- 6 years 5 months: Rounded down to 6 years.
3. The 5-Year Eligibility Cliff & Exceptions
To qualify for gratuity upon resignation or retirement, an employee must have completed at least 5 continuous years of service with the employer. Under Section 4(1), this 5-year requirement is strictly waived if termination occurs due to:
- Death of the employee: Payable immediately to legal heirs or nominees regardless of tenure length.
- Total permanent disablement: Resulting from accident or occupational disease.
4. Taxation under Section 10(10)
Gratuity taxation rules under the Income Tax Act, 1961 depend on employee categorization:
- Government Employees: Gratuity received by Central/State Government and Defense personnel is 100% tax-free with no monetary ceiling.
- Covered Non-Government Employees: The lowest of the following three amounts is exempt from tax under Section 10(10)(ii):
- Actual gratuity received.
- Statutory gratuity calculated using the 15/26 formula.
- The Government-notified statutory ceiling of ₹20,00,000 (₹20 Lakh).
- Excess Gratuity: Any amount paid above ₹20 Lakh is included in taxable salary income and taxed at personal slab rates (though Section 89 relief may be claimed).
Frequently Asked Questions (FAQs)
What components of salary are included in gratuity calculations?
Under statutory provisions, gratuity is calculated strictly on Basic Salary and Dearness Allowance (DA). Other allowances such as HRA, Special Allowance, LTA, medical reimbursement, annual performance bonuses, and employer EPF contributions are strictly excluded from the gratuity wage base.
Can an employer pay more than the ₹20 Lakh statutory gratuity limit?
Yes. Employers can voluntarily pay gratuity or ex-gratia amounts exceeding ₹20 Lakh pursuant to contractual agreements or company policies. However, the tax exemption under Section 10(10) is capped at ₹20,00,000; any excess amount paid will be added to the employee's taxable income and taxed at their applicable slab rate.
Is gratuity payable if an employee resigns after 4 years and 8 months?
Under judicial precedents by the Madras High Court and various labor tribunals, completing 4 years and 240 days of actual working in the 5th year has been construed as satisfying the 5-year continuous service condition for 6-day week establishments. However, many employers adhere strictly to the complete 5-calendar-year rule unless challenged. To prevent disputes, completing 5 full years before resigning is recommended.
Can gratuity be forfeited by the employer?
Under Section 4(6) of the Act, an employer can only forfeit gratuity if an employee's services are terminated for riotous or disorderly conduct, acts of violence, moral turpitude, or willful damage to company property (only to the extent of financial loss caused). Gratuity cannot be withheld simply due to notice period disputes without formal termination under these statutory conditions.
How does the 15/30 calculation differ for employees not covered under the Act?
For organizations not covered under the Gratuity Act (typically smaller firms with fewer than 10 workers), the calculation uses 30 days as the divisor: Gratuity = (15 × Salary × Completed Years) / 30. Unlike covered employees, no 6-month rounding up is permitted; only completed full years of service count toward the payout.