Question 1

What is gratuity in India?

Accepted Answer

Gratuity is a lump-sum benefit paid by an employer to an employee for long, continuous service. It is governed by the Payment of Gratuity Act, 1972 (administered by the Ministry of Labour & Employment) and is typically paid on superannuation, retirement, resignation, or on death/disablement.

Question 2

How is gratuity calculated under the Payment of Gratuity Act, 1972?

Accepted Answer

For employees covered by the Act, the standard formula is: Gratuity = Last Drawn Salary × 15 × Years of Service ÷ 26. "Last Drawn Salary" means monthly Basic + Dearness Allowance. The number 15 represents 15 days of salary credited per completed year of service, and 26 is the standard number of working days per month under the Act.

Question 3

How are years of service rounded?

Accepted Answer

Under Section 4(2) of the Act, any part year of six months or more is rounded UP to the next full year. A part year of less than six months is dropped. For example, 10 years 7 months is treated as 11 years, while 10 years 5 months is treated as 10 years.

Question 4

What is the minimum service to be eligible for gratuity?

Accepted Answer

Five years of continuous service with the same employer is the standard eligibility threshold under Section 4(1). The 5-year rule is waived where employment ends due to death or disablement. This calculator still shows an informational estimate below 5 years, but clearly labels it as not normally eligible under the standard rule.

Question 5

Is there a maximum gratuity amount?

Accepted Answer

Yes. Under Section 4(3) of the Act, the maximum gratuity payable is currently capped at ₹20,00,000 (raised from ₹10,00,000 via Notification S.O. 1420(E) issued by the Ministry of Labour & Employment, in force 29 March 2018).

Question 6

Is gratuity taxable in India?

Accepted Answer

Gratuity received from an employer is exempt from income tax under Section 10(10) of the Income Tax Act, 1961, subject to a ceiling. For employees covered by the Payment of Gratuity Act, the exemption is the actual gratuity received, capped at ₹20,00,000. For employees not covered by the Act, the exempt amount is the least of ₹20 lakh, the actual gratuity received, or (½ × average last-10-month salary × completed years of service). Anything above the cap is added to taxable salary.

Question 7

Does this calculator include the income-tax exemption?

Accepted Answer

Yes. The result panel shows both the tax-exempt portion (up to ₹20 lakh under Section 10(10)) and any taxable portion above that cap, so you can see what to expect on your salary tax computation.

Question 8

Is this calculator legal or tax advice?

Accepted Answer

No. This calculator provides an estimate for educational purposes only and is not legal, financial, or tax advice. Actual gratuity entitlement can vary based on your employment contract, employer-specific policies that exceed the statutory minimum, mode of cessation of service, and individual tax circumstances. Always verify with your HR department, a qualified tax professional, or the Ministry of Labour & Employment / Income Tax Department.

Gratuity Calculator

Gratuity inputs

Official sources

How gratuity is calculated

Last drawn salary

Years of service

Statutory ceiling

The gratuity formula

Standard formula

Service rounding

Tax treatment

What this calculator does and doesn't model

What we model

Simplifications

Out of scope