Gratuity Calculator

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What is Gratuity?

Gratuity is a lump-sum amount paid by an employer to an employee as a token of appreciation for long and continuous service. According to the Payment of Gratuity Act, an employee becomes eligible for gratuity after completing 5 years of continuous service.

How is Gratuity Calculated?

Gratuity depends on your last drawn basic salary and total years of service. The formula varies slightly for employees covered under the Gratuity Act, but the most widely used formula is:

Example of Gratuity Calculation

• Last Drawn Salary (Basic + DA): ₹50,000
• Years of Service: 10 years

Using the formula:
Gratuity = (15/26) × 50,000 × 10 = ₹2,88,461

Eligibility Criteria for Gratuity

• ✔ Minimum 5 years of continuous service
• ✔ Applicable to employees under Shops & Establishments Act
• ✔ Paid only at resignation, retirement, disability, or death
• ✔ No 5-year rule applies in case of death or disability

Benefits of Gratuity

• ✔ Acts as a long-term financial safety net
• ✔ Encourages employees to stay longer in an organization
• ✔ Tax-free up to ₹20 lakh under Section 10(10)
• ✔ Helps build retirement corpus
• ✔ No risk — completely employer funded

Frequently Asked Questions (FAQ)

1. Who is eligible for Gratuity?

Any employee who completes 5 years of continuous employment is eligible.

2. Is gratuity taxable?

Gratuity is tax-free up to ₹20 lakh. Any amount above that is taxed as per your income slab.

3. Is gratuity payable if I resign?

Yes. Gratuity is paid after resignation, retirement, or termination (except in misconduct cases).

4. Can my employer refuse to pay gratuity?

No, gratuity is a legal right. Employers cannot deny payment unless there is proven misconduct.