How Gratuity is Calculated (Formula, 5‑Year Rule, and Tax‑Free Limit)
Gratuity is a lump‑sum payment made by an employer to an employee as a token of appreciation for continuous service. It’s mandated under the Payment of Gratuity Act, 1972 for establishments with 10 or more employees. The amount depends on your last drawn salary and years of service, and up to ₹20 lakh is tax‑free. Our Gratuity Calculator estimates your entitlement in seconds.
The Gratuity Formula and 5‑Year Rule
To be eligible, you must have completed at least 5 years of continuous service (except in case of death or disability). The formula is: Gratuity = (15 × last drawn salary (Basic + DA) × number of years of service) / 26. The 26 represents the number of working days in a month. Importantly, any period of service exceeding 6 months is rounded up to a full year. So 5 years and 7 months becomes 6 years. This rounding can significantly increase the payout.
Step‑by‑Step: Estimate Your Gratuity
- Open the Gratuity Calculator. Enter your last drawn monthly salary (Basic + DA).
- Enter the total years of service. The tool automatically rounds fractions where applicable.
- Click “Calculate” to see your estimated gratuity and the rounded service years used in the computation.
What Counts as Salary for Gratuity?
Only Basic + Dearness Allowance is considered. Allowances like HRA, conveyance, and special allowance are not included. That’s why your last drawn salary for gratuity calculation is often lower than your total CTC. Keeping your basic salary structure competitive is an important part of long‑term financial planning. For broader salary and hike analysis, see our Salary Hike Calculator.
Frequently Asked Questions
What if I resign before completing 5 years?
You won’t be eligible for gratuity unless the company policy is more generous than the Act. The 5‑year rule is mandatory.
Is gratuity payable in case of death?
Yes, to the nominee/legal heir, irrespective of service length, with a maximum of ₹20 lakh.
Does the calculator consider part‑year rounding?
Yes, it rounds up if the fraction is 6 months or more, as per the Act.
Can I use this for central government employees?
Government employees follow different rules. This calculator is for employees covered under the Payment of Gratuity Act.
Is it free and private?
Yes, the tool works entirely in your browser—no data is shared or stored.
Disclaimer: This is general information and not legal or financial advice. Verify with your HR or a professional for exact calculations.
Calculate Your Gratuity