Find the gratuity you get when you leave a job after five or more years of continuous work, and how much of it is tax-free.
Fifteen days of salary is payable for each completed year of service.
Monthly salary is divided by 26 working days to get a daily rate.
Service of more than six months in the final year rounds up to a full year.
Eligibility normally requires five years of continuous service, waived in case of death or disablement.
Gratuity: 15 × last drawn salary × years of service ÷ 26
Salary: Last drawn basic + dearness allowance
26: Working days in a month under the Act
Gratuity is a lump sum an employer pays when you leave after long service, retire, or in case of death or disablement. For employees covered by the Payment of Gratuity Act, the amount is fixed by a formula based on your last drawn basic plus dearness allowance and your years of service. This calculator applies that formula, checks the five-year eligibility rule, and shows how much is tax-exempt up to the cap.
Employees planning a job change, people approaching retirement and HR staff settling final dues all need this figure. A senior engineer in Gurugram who has been with the same company for over twelve years wants to know what he will receive if he resigns this year. The calculator answers: how much gratuity am I entitled to, and how much of it is tax-free?
1. Take the last drawn monthly salary S as basic pay plus dearness allowance.
2. Count years of service. Under the Act, a final part-year of more than six months is rounded up to a full year; the calculator rounds to the nearest year.
3. Check eligibility: at least five years of continuous service, except in case of death or disablement.
4. Gratuity = 15 × S × years ÷ 26.
5. Tax-exempt part = the smaller of the gratuity and the ₹20,00,000 cap.
6. Taxable part = gratuity − exempt part.
The Act gives fifteen days of wages for each completed year of service. To turn a monthly salary into a daily wage, it treats a month as having 26 working days, leaving out four weekly holidays. So one day's wage is S ÷ 26, and fifteen days is 15 × S ÷ 26. Multiplying by years of service gives the formula. In effect, you get a little over half a month's salary for each year, or about 57.7% of monthly salary per year.
Gratuity uses the last drawn salary for all years of service, not the salary you earned in each year. This makes it a defined benefit that rewards staying on while pay rises. A promotion just before leaving increases the gratuity for every year of service. It also means that basic pay, not CTC, decides the amount. A structure with a low basic and high allowances reduces gratuity even when the total package is large.
The five-year rule means that someone who leaves at four years and a few months normally receives nothing, though courts have sometimes accepted 4 years and 240 days, as the page notes. Once eligible, it is paid whether you resign or retire. For tax, gratuity for non-government employees is exempt up to ₹20 lakh over a lifetime, as the calculator uses; any excess is taxed as salary. Employers not covered by the Act may use a different divisor.
Vivek, a senior engineer in Gurugram, has worked for the same company for 12 years and about 8 months. His last drawn basic plus DA is ₹72,000 a month.
Answer: Gratuity payable ₹5,40,000; Years counted 13; Tax-exempt portion ₹5,40,000
Using gross or CTC salary instead of basic plus DA.
Rounding up a final part-year of six months or less.
Assuming the five-year rule is met by rounding 4 years 7 months up to 5.
Using 30 days instead of 26 for an employer covered by the Act.
Forgetting that the tax exemption cap is a lifetime limit across employers.
Estimating final settlement before resigning or retiring.
Deciding whether to wait a few months to cross the five-year mark.
Checking an employer's full-and-final settlement.
Planning retirement cash flows along with PF and pension.
Do I get gratuity if I leave before 5 years?
Usually not. Five years of continuous service is the normal rule. The exception is death or disability, where gratuity is paid no matter how long you worked.
Is gratuity taxable?
Gratuity is tax-free up to a lifetime limit of ₹20 lakh for non-government employees. Anything above that is taxable. Government employees get it fully tax-free.
Does 4 years and 7 months count as 5 years?
Usually not — the five-year rule is based on completed years. Rounding up only applies once you already qualify, when working out the amount, not for qualifying in the first place. Some court cases have allowed 4 years and 240 days, so check your employer's own policy.