GRATUITY CALCULATOR
The Payment of Gratuity Act 1972 gives you a statutory right to half a month's wages for every completed year of service, provided you have put in at least five years. The calculation itself is short and is set out in full below, so you can reproduce the figure on paper. We also show an indicative figure based on the establishment-size factor that some payroll systems apply, but the headline number is the standard Section 4(1) formula that every Indian payroll calculator quotes.
The four variables
| Symbol | Meaning |
|---|---|
| R | Last drawn basic salary plus dearness allowance. House rent allowance, overtime, commission, bonus and other allowances are excluded. |
| V | Number of employees in the establishment as on 1 March immediately preceding the date of termination. |
| M | Number of months of service, after applying the fraction rule. |
| Y | Completed years of service, used by the simpler route. |
The statutory formula — Section 4(1)
This is the formula most people have seen quoted, and it is the one every calculator on the internet shows you:
Gratuity = (R × 15 × Y) ÷ 26
Where R is your last drawn basic plus DA, Y is your completed years of
service, and 26 is the statutory number of working days in a month. Fifteen days of wages per year is
the accrual rate, which is exactly half a month for each year you complete.
A quick check: basic plus DA of forty thousand rupees over thirteen completed years gives
(40000 × 15 × 13) ÷ 26 = 3,00,000. That is the figure the calculator above will show
for Route 1 with those inputs.
The establishment-size factor
Route 2 introduces the employee count, which rewards you slightly for working in a large establishment. The first step is to add one week of wages for every fifty-two employees:
K = R + (V ÷ 52)
Then, if you have ten years or less of service:
G = (15 ÷ 26) × K × M
And if you have more than ten years, the first ten years are weighted at fifteen days and every year beyond ten is weighted at seven days:
G = (15 ÷ 26) × K × 10 + (7 ÷ 26) × K × (M − 10) ÷ 2
Notice that the rate halves after ten years but applies over half as many years, so long-service employees are treated more generously per extra month than short-service ones.
Which figure gets paid
The standard Section 4(1) formula is what Indian payroll software, bank calculators and government sources quote, and that is the figure this calculator treats as payable. The establishment-size factor appears in the statute alongside it, and some employers payroll systems incorporate it. Because the exact interaction between the two provisions is interpreted differently across employers, we show the establishment-size figure as clearly marked indicative rather than folding it into the payable number. Your HR or payroll department's figure is the one that will actually be paid, so for anything consequential, confirm with them.
The ceiling and the tax-free limit
The Payment of Gratuity Amendment Act 2018 raised the maximum payable gratuity to twenty lakh rupees for establishments employing ten or more people, and three lakh twenty thousand rupees for establishments with fewer than ten. Gratuity received up to the lower of that ceiling or fifteen lakh rupees is completely tax-free under Section 10(10) of the Income Tax Act. Anything above that limit becomes taxable in your hands as salary income in the year of receipt.
The five-year rule and the 240-day rule
Five completed years of continuous service is the eligibility threshold. A year counts as completed when you worked at least 240 days in it, or 190 days for mines and below-ground work. Absences caused by authorised leave, illness, layoff, strike or lockout still count as days of service. Only genuine unauthorised absence reduces the count.
The one exception to the five-year rule is death or permanent disablement, where gratuity is payable however short the service. The checkbox above applies that rule.
How a fraction of a year is treated
A fraction of service exceeding six months is rounded up to a full year; six months or less is disregarded. Seven years and eight months counts as eight, seven years and four counts as seven. Note this rounding applies to the amount, not to the eligibility test, which must be satisfied in full.
When gratuity can be forfeited
The Act permits forfeiture only in specific situations: dismissal for misconduct, leaving without the statutory notice, or unauthorised absence for more than three continuous months. Resignation with valid written notice never attracts forfeiture. Your employer must be able to justify any forfeiture claim.
Important caveat
This calculator is a planning and self-assessment tool based on the published statutory formula. It cannot know your establishment's headcount on the relevant date, your exact termination date, or any contractual terms that may give you a better deal than the Act. For a figure you intend to act on, treat your HR or payroll department's number as final.