Gratuity Calculator

About the Gratuity Calculator

Gratuity is the lump sum an employer pays when employment ends after long service. It is governed by Chapter V of the Code on Social Security, 2020, which replaced the Payment of Gratuity Act, 1972. Enter the dates of joining and leaving, the reason the employment ended and the last monthly wages, and the calculator checks eligibility, counts the years of service the way the Code does, and works out the amount, the tax-free part and the date by which it must be paid.

It also shows the effect of the Code’s 50% wage rule: when allowances such as HRA and conveyance are more than half of the total pay, the excess is added to wages — so gratuity is worked out on more than basic + DA.

Who is entitled

• Five years’ continuous service, then gratuity is payable on superannuation, retirement, resignation, death, disablement or the end of a fixed-term contract (s.53(1)). Working journalists qualify after three years.
• No minimum service when employment ends because of death, disablement or the expiry of fixed-term employment (s.53(1), second proviso). The Government’s announcement of the Codes describes fixed-term employees as eligible after one year.
• Continuous service includes time off for sickness, accident, leave, lay-off, a strike or a lock-out that is not the employee’s fault. Someone without uninterrupted service is treated as having a year of continuous service after actually working 240 days in the twelve months before the calculation date (190 days below ground in a mine or in an establishment working fewer than six days a week) — s.54.
• The chapter applies to every factory, mine, oilfield, plantation, port and railway company, and to every shop or establishment with ten or more employees on any day in the preceding twelve months (First Schedule).

How the amount is worked out

• 15 days’ wages for every completed year of service, and for a part of a year over six months, at the rate of wages last drawn (s.53(2)).
• For monthly pay, 15 days’ wages = monthly wages ÷ 26 × 15 (Explanation 3) — about 57.7% of a month’s wages per year.
• Piece-rated employees: a day’s wages is the average for the three months before leaving, overtime left out. Seasonal establishments: seven days’ wages for each season.
• Fixed-term and deceased employees are paid pro rata. The Code does not define pro rata; the calculator counts completed years + months ÷ 12 + days ÷ 365 and shows what the general rule would give.
• The total cannot exceed the ceiling notified by the Central Government — ₹20 lakh (s.53(3)); an employer can pay more under an award, agreement or contract (s.53(5)).

The 50% wage rule

Gratuity is paid on “wages” as defined in section 2(88) of the Code: basic pay, dearness allowance and retaining allowance, and any other remuneration except the listed exclusions — statutory bonus, the value of housing and amenities, employer PF and pension contributions, conveyance allowance or travel concession, special expenses of the job, HRA, pay under an award or settlement, overtime allowance and commission (gratuity and retirement benefits themselves are also excluded).

If those excluded payments are more than half of all remuneration, the excess is added back to wages. With basic + DA of ₹30,000 and excluded allowances of ₹40,000, total pay is ₹70,000; half is ₹35,000, so ₹5,000 is added and gratuity is worked out on ₹35,000 a month. A special allowance is not on the exclusion list, so it counts as wages in full.

Tax on gratuity

Under the Income-tax Act, 2025, section 19(1) Table:

• Government employees (Central or State Government, local authorities): the entire gratuity is exempt (Sl. No. 3).
• Gratuity under the gratuity law: exempt up to the amount worked out under it (Sl. No. 5). The entry still names the Payment of Gratuity Act, 1972; the calculator applies it to gratuity under the Code.
• Other employees: exempt up to the least of the gratuity received, the limit notified by the Central Government (₹20 lakh, less any gratuity exempted in earlier years) and half a month’s average salary of the last ten months for each completed year (Sl. No. 6). Salary here is basic pay plus DA where the terms of employment provide for it.
• Gratuity paid to a widow, children or dependants on an employee’s death is excluded from their income on the same basis (Schedule III, Sl. No. 38).

For employers: gratuity for every employee

Choose Many employees (CSV or Excel) and a sheet with one row per employee: Name, Date of joining and Basic + DA a month are needed (Basic and DA can be two columns — they are added up); Employee ID, Date of leaving, Other pay counted as wages, Excluded allowances and Reason for leaving are used when present. Each row is worked out with the same rules as the single calculator, as if the employee left on the “as on” date (or on their own leaving date), and the report shows two figures:

• Payable — what is due if they left on that date, so zero for anyone short of five years (unless the reason removes the minimum).
• Accrued — 15 days’ wages for each year counted so far, before the five-year test: a simple measure of the gratuity built up.

It is a quick estimate, not an actuarial valuation: Ind AS 19 and AS 15 valuations discount future payments and allow for pay rises and staff leaving. Rows with a problem (a date that is not a date, missing wages) are listed and left out of the totals.

When it must be paid

The employer must work out the gratuity as soon as it becomes payable and pay it within 30 days (s.56(2)–(3)), whether or not an application has been made. If it is paid late, simple interest is due from the date it became payable to the date it is paid, at a rate not above the one the Central Government notifies for repayment of long-term deposits (s.56(4)). Gratuity can be forfeited only in the cases in section 53(6): termination for an act, wilful omission or negligence causing damage to the employer’s property (to the extent of the loss), or for riotous or disorderly conduct, violence, or an offence involving moral turpitude committed in the course of employment.

Limitations

• The ₹20 lakh ceiling and the ₹20 lakh tax-free limit are set by Central Government notification and can change; both are editable.
• “Pro rata” for fixed-term and deceased employees is not defined in the Code; rules or a court may count it differently.
• Service is assumed to be continuous from the date of joining. Breaks, transfers between employers and earlier settlements need checking against section 54 and your records.
• Rules made under the Code may add procedure and forms; an award, agreement or contract can give better terms (s.53(5)).
• An estimate for information, not legal or tax advice. For a dispute, the competent authority under the Code decides (s.56(5)).

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