Gratuity Calculator

Gratuity is the one part of your CTC you cannot see on a payslip and cannot touch for five years. When it finally arrives, in the full and final settlement after you resign, it is usually smaller than people expect, because the formula uses basic and not gross, and because of how part years are counted. This page does the sum the way the Act does it.

Fifteen days for every year, on a 26-day month

Three inputs and a switch:

• Last drawn salary, per month, meaning basic plus dearness allowance only. Not gross, not CTC. This is the mistake that overstates gratuity by two or three times.
• Completed years of service, and additional months beyond that, entered separately. The months matter.
• Employer covered by the Act. Any establishment with ten or more employees on any day in the past year is covered, and once covered, stays covered. Almost every company you would join through Naukri or a campus placement is.

For a covered employer, section 4 of the Payment of Gratuity Act, 1972 gives:

gratuity = 15 × last drawn salary × years of service / 26

Fifteen days’ wages for each year, with 26 taken as the working days in a month to turn a monthly salary into a daily one. That 15/26 comes to 0.577 of a month’s basic per year of service, which is a quicker way to sanity-check an HR letter: ten years on ₹50,000 basic should be a little under six months’ basic.

Employers outside the Act (fewer than ten employees, and covered establishments cannot opt out) are not obliged to pay gratuity at all. Those that do commonly use a 30-day month and count only completed years, and the calculator’s “not covered” switch does that: half a month’s basic per year, nothing for the part year.

₹50,000 basic, ten years and eight months

The calculator’s defaults: last drawn basic plus DA of ₹50,000 a month, 10 years and 8 months of service, covered employer.

Eight months is more than six, so the Act rounds service up to 11 years.

gratuity = 15 × 50,000 × 11 / 26
         = 82,50,000 / 26
         = 3,17,308

Gratuity payable	₹3,17,308
Status	Eligible
Years counted	11
Before the ₹20 lakh cap	₹3,17,308

Change the eight months to five and the service counts as 10 years: ₹2,88,462, which is ₹28,846 less for leaving three months earlier. Six months exactly does not round up either; the Act says “in excess of six months”. Seven months does. If your resignation date is anywhere near a six-month boundary, this is worth a look at the calendar before you put the date in the email, because a few weeks of notice period can be worth more than half a month’s basic.

Two more things the table tells you. The same ten years and eight months at a company outside the Act, using the 30-day convention, comes to ₹2,50,000. And if you ran this on a ₹1,25,000 gross salary instead of the ₹50,000 basic underneath it, you would get ₹7,93,269 and a very disappointing settlement letter.

Five years, and the 240-day argument

Gratuity is payable on leaving only after five years of continuous service with the same employer. Leave at four years and eleven months and the answer is zero. The calculator says so: on the default salary it shows the ₹1,44,231 you would have received a month later and then tells you it is not payable.

That money was in your CTC. Most employers provision 4.81% of basic every year and show it in the package they quoted you, so a four-year stint means you funded a benefit and left it behind. The take-home salary calculator shows the provision sitting inside the CTC line.

Death and disablement are the exceptions; gratuity is paid to the nominee or the employee whatever the tenure.

Then there is the 240-day argument. Section 2A of the Act treats an employee who has worked 240 days in a year as having a full year of continuous service, and the Madras High Court in the Mettur Beardsell case held that four years and 240 days therefore satisfies the five-year condition. Some employers honour it, most do not, and the Supreme Court has not settled it in a way that forces everyone’s hand. If you are at four years and nine months and the employer refuses, you have a case to put to the Controlling Authority. What you do not have is certainty, so plan the resignation date on the assumption that five means five.

Does the notice period count? If you serve it, yes, it is service. If you buy it out and leave the same week, generally no. Ask HR to confirm the relieving date in writing before you rely on it for the five-year line.

The ₹20 lakh ceiling and the tax on it

The Act caps the statutory gratuity at ₹20,00,000. A general manager on ₹1,50,000 basic with 25 years would work out to ₹21,63,462 on the formula and receive ₹20,00,000 from the employer’s obligation; the calculator shows both numbers and says “capped”. An employer can pay more voluntarily, and some do for senior people, but the Act does not make them.

The tax exemption under section 10(10) is also ₹20 lakh, and it is a lifetime limit, not a per-employer one. Claim ₹8 lakh exempt at your first employer and only ₹12 lakh of exemption is left for the next. Anything above the exempt amount is added to salary and taxed at your slab rate for that year, which for a large settlement can push you into 30% plus surcharge. If that happens, relief under section 89 for the lumpy receipt is worth asking a CA about, and the income tax calculator will show the slab it lands in. Central and state government employees get gratuity fully exempt.

Gratuity for a covered employee is also a statutory claim that ranks ahead of most other dues if the employer becomes insolvent, and it cannot be attached by a court decree. The employer’s normal recourse for a loan or a laptop not returned is to recover from your final salary, not from gratuity.

When the employer stalls

Gratuity is due within 30 days of it becoming payable, which means 30 days from your last working day. You apply on Form I to the employer, though most companies pay in the full and final without being asked. If it is late, simple interest runs at the rate the Central Government notifies, currently 10% a year, unless the delay was your fault.

If it does not come, Form N goes to the Controlling Authority under the Act, which in most states is the Assistant or Deputy Labour Commissioner for the area. There is no fee, you do not need a lawyer, and the authority can order payment with interest. Employers who withhold gratuity “pending clearance” or against alleged dues are on thin ground: section 4(6) allows forfeiture only for damage or loss caused by your wilful act, or for termination for riotous conduct or an offence involving moral turpitude, and only after a proper enquiry. A blanket hold because you left on bad terms is not lawful, and saying so in the first email usually gets things moving.

For central and state government service, defence and PSU banks the rules are different and pension-linked; this formula does not apply to them.