What Is Gratuity in India?
Gratuity is a statutory benefit paid by an employer to an employee as a token of appreciation for long-term service. It is governed under the Payment of Gratuity Act, 1972 in India. Employees who complete at least five years of continuous service are eligible to receive gratuity upon resignation, retirement, superannuation, or death.
Gratuity Formula in India
For employees covered under the Payment of Gratuity Act:
Gratuity = (Last Drawn Salary × 15 × Years of Service) ÷ 26
For employees not covered under the Act:
Gratuity = (Last Drawn Salary × 15 × Years of Service) ÷ 30
How Service Period Is Calculated
If an employee completes more than 6 months in a year, it is rounded up to the next full year. If it is less than 6 months, it is ignored.
Eligibility for Gratuity
- Minimum 5 years of continuous service
- Company must employ 10 or more employees
- Applicable on resignation, retirement, death, or disability
Taxation Rules
Under current rules, gratuity received is tax-free up to ₹20 lakh for employees covered under the Act. Any amount above this is taxable as per income tax slab.
Why Use This Gratuity Calculator?
- Accurate calculation as per Indian law
- Handles rounding rules automatically
- Shows taxable portion
- Works for private and government employees