Question 1

What is gratuity?

Accepted Answer

Gratuity is a lump sum benefit an employer pays to an employee as a token of appreciation for continuous service, usually on retirement, resignation, or termination after completing the minimum eligible service period. It is governed in India by the Payment of Gratuity Act, 1972.

Question 2

How is gratuity calculated?

Accepted Answer

For employees covered under the Payment of Gratuity Act, gratuity is calculated as G = n × b × 15/26, where n is the number of completed years of service and b is the last drawn basic salary plus Dearness Allowance (DA). This calculator uses that exact formula.

Question 3

Who is eligible for gratuity?

Accepted Answer

An employee is generally eligible for gratuity after completing 5 years of continuous service with the same employer. This 5-year requirement is waived if the employee becomes disabled or passes away due to an accident or disease.

Question 4

How does the rounding rule for years of service work?

Accepted Answer

If your total service includes a part-year of 6 months or more, it is rounded up to the next full year for the purpose of this formula. For example, 17 years and 6 months is treated as 18 years, while 17 years and 5 months is treated as 17 years.

Question 5

Is there a maximum limit on gratuity?

Accepted Answer

Yes. Under the Payment of Gratuity Act, the gratuity amount payable cannot exceed ₹10,00,000. Any amount an employer chooses to pay above this statutory ceiling is treated as ex-gratia and isn't covered by the Act's protections.

Question 6

Is gratuity taxable?

Accepted Answer

Gratuity received by government employees is fully exempt from income tax. For private-sector employees covered by the Act, the exemption is the lowest of ₹20,00,000, the actual gratuity received, or the eligible gratuity as per the formula. Any amount beyond this is taxable as salary income.

Question 7

Does DA count towards the salary used in this calculation?

Accepted Answer

Yes. The 'b' in the formula refers to your last drawn Basic Salary plus Dearness Allowance (DA). It doesn't include other components like HRA, bonuses, or special allowances.

Question 8

What happens if I switch jobs before completing 5 years?

Accepted Answer

In most cases, you won't be eligible for gratuity if you leave before completing 5 years of continuous service with an employer, unless the exit is due to death or disability. This calculator will flag your entry as not yet eligible in that case.

Question 9

Is gratuity the same as EPF?

Accepted Answer

No. Gratuity and the Employees' Provident Fund (EPF) are separate retirement benefits. EPF is a savings scheme funded by monthly contributions from both employee and employer, while gratuity is a one-time payment funded entirely by the employer, based on years of service.

Question 10

Is this gratuity calculator accurate?

Accepted Answer

This calculator applies the standard statutory formula and rounding rule used across the industry. Your actual payout depends on your company's specific policy, whether it is covered under the Act, and your final drawn basic salary and DA at the time of separation, so treat this as an estimate.

Gratuity Calculator

How Gratuity is Calculated

Gratuity Formula

Gratuity Calculation Example

Worked Example

Eligibility, Cap & Tax Exemption