Gratuity Calculator

Gratuity means a one-time payment made by the employer to the employee as remuneration for their services over the years. Under the Payment of Gratuity Act, 1972, gratuity has to be paid by organizations employing 10 or more employees. The minimum criteria required from the employee's side to get gratuity is that he should have rendered continuous service for five years (four years and 240 days are considered to be five years as per court verdicts). The calculation of gratuity is done on the basis of 15 days of the last drawn salary for each year of service. The current maximum ceiling limit of gratuity is Rs 20 lakhs, but it may exceed this limit as per the decision of the employer.

According to the Payment of Gratuity Act, the gratuity calculation formula is as follows: Gratuity = (Last drawn salary x 15 x Years of service)/26. In the formula, the last drawn salary includes the basic salary plus dearness allowance. Here, the number 26 has been used in the denominator as it corresponds to 26 working days per month.

Worked example

Last drawn basic + DA: Rs 50,000 per month. Number of years of service: 8 years. Gratuity = (50,000 x 15 x 8)/26 = Rs 60,00,000/26 = Rs 2,30,769. In cases where the number of years of service includes six months or more in the last year, it is rounded off to the next one. Thus, seven years and seven months are eight years, while seven years four months will be seven years.

In case of workers who are NOT covered under the act

Some employers use another calculation method to compute gratuity: Gratuity = (Last drawn salary x 15 x Years of service)/30. The only difference in this case is the denominator. As against 26 working days, there are 30 days used here as the basis for calculating the gratuity, which works out to a lesser figure.

Eligibility depends on the type of organization and the circumstances of separation.

• 5 years of continuous service: The standard requirement under the Payment of Gratuity Act. Applies to resignation, retirement, and termination.
• Less than 5 years (death or disability): If an employee dies or becomes permanently disabled, gratuity is payable regardless of how long they've worked. Even 1 day of service qualifies.
• Fixed-term contract employees: The 2018 amendment made fixed-term employees eligible for gratuity on a pro-rata basis, even without completing 5 years, if their contract ends.
• Part-time employees: Not explicitly covered under the Act, but some High Court rulings have extended gratuity rights to part-time workers in specific cases.
• The 4 years 240 days rule: Multiple court judgments (including the Supreme Court) have held that an employee who has completed 4 years and 240 days is deemed to have completed 5 years for gratuity purposes.

Gratuity taxation depends on whether you're a government employee, a private sector employee covered under the Act, or not covered.

A few modifications have been proposed under the Code on Social Security, 2020, to the gratuity regulations. After the notification of this code, the qualifying period for gratuity entitlement is expected to come down from 5 years to 1 year for fixed-term contracts. In addition, it has been suggested that even gig and platform workers may be eligible for gratuity under certain conditions. The maximum amount of gratuity is still pegged at Rs 20 lakhs and hasn't been changed since 2018, when industry associations such as CII and FICCI advocated its increase to Rs 30 lakhs.