Gratuity Calculator

Gratuity for an employee covered by the Payment of Gratuity Act, 1972 is last drawn (basic + DA) × 15/26 × years of service, where service beyond six months in the final year rounds up to a full year, and the amount payable is capped at ₹20,00,000 (Section 4(3)). Employees of establishments not covered by the Act use a different formula for the tax exemption: average 10-month salary × 15/30 × completed years, fractions ignored.

That one paragraph is the whole computation — the rest is knowing which formula applies to you, how the rounding works, and how much of the amount is tax-free under Section 10(10) of the Income-tax Act, 1961. This calculator handles all of it: pick your coverage, enter salary and service, and optionally enter the gratuity you actually received to see the exempt vs taxable split. Every rupee figure on this page is produced by the same engine that powers the calculator above.

Section 4(2) of the Payment of Gratuity Act, 1972 grants 15 days' wages for every completed year of service, computed at the last drawn rate of basic + dearness allowance on a month of 26 working days. Hence the factor 15/26.

Worked example (the calculator's default): last drawn basic + DA of ₹50,000, service of 10 years 7 months. Seven months exceeds six, so the final year rounds up and service counts as 11 years:

• Gratuity = ₹50,000 × 15/26 × 11 = ₹3,17,308

The Section 4(3) ceiling bites at high salaries and long service. At a last drawn basic + DA of ₹4,00,000 and 10 years of service, the formula gives ₹23,07,692 — but only ₹20,00,000 is payable under the Act (S.O. 1420(E) dt 29-03-2018). The calculator flags this cap whenever the formula crosses it. An employer can pay the excess as ex-gratia under better terms of employment, but the statute does not require it.

Who is covered? Factories, mines, oilfields, plantations, ports, railway companies, and shops or establishments employing 10 or more persons on any day in the preceding 12 months — and once the Act applies, it continues to apply even if headcount later drops below 10 (Section 1(3A)).

If the Act does not apply, there is no statutory formula forcing your employer to pay a particular amount — gratuity becomes a matter of the employment contract or employer policy. What the law does prescribe is how much of whatever you receive is tax-free: Section 10(10)(iii) of the Income-tax Act, 1961 exempts half a month's salary for each completed year of service, computed as:

• Average salary of the 10 months immediately preceding retirement (basic + DA if in terms of employment + fixed-percentage commission on turnover),
• × 15/30 (half a month),
• × completed years only — fractions are ignored, with no round-up.

Worked example: average 10-month salary of ₹30,000 and service of 7 years 8 months. The 8 months are ignored (no round-up outside the Act), so 7 completed years count:

• Exemption formula amount = ₹30,000 × 15/30 × 7 = ₹1,05,000

Note the two differences from the covered formula: the salary base is a 10-month average (not last drawn), and the divisor is 30 (not 26) — both make the non-covered figure smaller for the same inputs.

Section 4(1) of the Payment of Gratuity Act, 1972 makes gratuity payable on superannuation, retirement, resignation, death or disablement — after five years of continuous service. Two qualifications matter:

• The five-year condition is waived on death or disablement. If employment ends due to death or disablement caused by accident or disease, gratuity is payable regardless of length of service (to the nominee or heirs in the case of death).
• The "4 years + 240 days" position is judicial, not statutory. The Madras High Court (and decisions following it) has read "continuous service" so that 240 working days in the fifth year completes it. Some employers and controlling authorities accept this; others do not, and the statute's own text says five years. Treat it as an argument to raise with your employer or the controlling authority, not an entitlement this calculator can promise.

This calculator applies the statutory gate: below five years of actual service it shows a "not yet eligible" state rather than an unqualified rupee figure — with a labeled projection of what the formula would give at five years. The quantum round-up (7 months → full year) never creates eligibility; it only affects how many years are counted once you qualify.

Gratuity is taxed as salary income except to the extent Section 10(10) of the Income-tax Act, 1961 exempts it. The three tiers:

• Sec 10(10)(i) — government employees: death-cum-retirement gratuity of Central/state government and local-authority employees is fully exempt, with no ceiling.
• Sec 10(10)(ii) — employees covered by the PoGA: exempt up to the least of (a) the 15/26 formula amount, (b) ₹20,00,000, and (c) the gratuity actually received.
• Sec 10(10)(iii) — all other employees: the same least-of test, but limb (a) is the 15/30 formula on the 10-month average salary with completed years only.

Worked split (covered employee): last drawn basic + DA ₹1,00,000, exactly 20 years of service, employer pays ₹15,00,000. The formula limb is ₹1,00,000 × 15/26 × 20 = ₹11,53,846, which is the least of {₹11,53,846, ₹20,00,000, ₹15,00,000} — so ₹11,53,846 is exempt and ₹3,46,154 is taxable as salary.

Two ceilings, one number: the ₹20,00,000 in Sec 4(3) of the PoGA is a payment ceiling (S.O. 1420(E) dt 29-03-2018); the ₹20,00,000 in Sec 10(10) is an exemption ceiling (CBDT Notification 16/2019 dt 08-03-2019) — and the exemption ceiling is a lifetime aggregate across all employers, not a per-employer allowance. The much-reported "₹25 lakh" is neither: it is the CCS (Pension) Rules ceiling for Central Government civil servants only (DA crossed 50%, effective 01-01-2024).

Honest answer first: ReadyBooks Payroll does not compute gratuity. It runs payslips, PF, ESI, professional tax and monthly TDS — but gratuity liability (typically an actuarial or formula-based year-end provision) is not one of its calculations, and we would rather say that plainly than imply otherwise. This page is an educational calculator for the statutory formula and the Section 10(10) exemption.

What the product does give you is the accounting scaffolding: the built-in chart of accounts ships dedicated Gratuity Provision (2460) and Gratuity Expense (6040) heads, so posting your periodic accrual — or the payout when an employee exits — is a clean manual journal entry against ready-made ledgers.

For the payroll numbers ReadyBooks does compute end-to-end, see ReadyBooks Payroll — free plan available. And for the related take-home math: the Salary / CTC Calculator shows where basic + DA sits inside your CTC (the same base this formula uses), the HRA Exemption Calculator covers Section 10(13A) read with Rule 2A, and the Income Tax Calculator tells you what any taxable gratuity actually costs at your slab.