Gratuity Calculator (Act 1972)
Calculate exact gratuity payout entitlement on resignation or retirement under the Payment of Gratuity Act.
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Act Coverage & Tax
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Complete Guide to Gratuity Calculation (Payment of Gratuity Act 1972)
Gratuity is a statutory monetary reward paid by an employer to an employee for rendering continuous long-term service (minimum 5 years). Understanding how gratuity is calculated, why 26 days is used in the formula, and how tax exemptions work under Section 10(10) ensures you receive your full rightful retirement entitlement.
Gratuity Formula Explained
- Gratuity = (15 × Last Drawn Basic Salary × Years of Service) ÷ 26
- Why 26 Days? A month is considered to have 26 working days (excluding 4 Sundays).
- Rounding Rule: Service over 6 months in the last year (e.g. 7 years 7 months) rounds up to 8 full years.
Eligibility & Special Exceptions
- 5-Year Continuous Service: Mandatory for normal resignation or retirement.
- 4 Years 240 Days Rule: Under judicial precedents, 4 years and 240 working days in the 5th year qualifies as 5 years of continuous service.
- Death / Total Disability: The 5-year minimum eligibility condition is completely waived.
Frequently Asked Questions (FAQs)
What is the maximum tax-free gratuity limit in India?
For private sector employees covered under the Payment of Gratuity Act, the lifetime tax-free gratuity exemption under Section 10(10) of the Income Tax Act is ₹20,00,000 (₹20 Lakhs). Any amount received in excess of ₹20 Lakhs is added to taxable income.
Can an employer deduct or withhold my gratuity on resignation?
No. Gratuity cannot be withheld by an employer for normal resignation or notice period shortfalls. It can only be forfeited in rare cases of proven moral turpitude, violence, or intentional physical damage to company property to the exact extent of monetary loss.
Does gratuity calculation include HRA or Special Allowance?
No. Gratuity calculation strictly uses your Last Drawn Monthly Basic Salary + Dearness Allowance (DA). Special Allowance, HRA, performance incentives, and travel allowances are not included in the basic wage definition.