Gratuity Calculator
Key Takeaway
Gratuity = (Last Salary × 15 × Years of Service) / 26. After 5 years of service, an employee earning ₹50,000 basic is entitled to ₹1,44,231 in tax-free gratuity (up to ₹20 lakh exemption).
Taxability Status (Sec 10(10))
What to do next
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The Loyalty Reward
Gratuity is a lump sum paid by an employer to an employee as a token of appreciation for long-term service (minimum 5 continuous years). It is a critical component of your CTC that you only truly realize if you stick around.
The 4-Year Itch: Why Arjun Waited
His HR manager pulls him aside. "Arjun, if you leave today, your gratuity is exactly zero. But if you stay for just 4 more months to complete 5 years, you unlock your gratuity."
Let's calculate what Arjun was about to walk away from:
- Formula: (15/26) × ₹80,000 × 5 years
- **Gratuity Amount: ₹2,30,769**
By simply waiting 4 months, Arjun earns a tax-free bonus of nearly ₹2.3 Lakhs. Gratuity acts as a powerful retention tool. If you are close to the 5-year mark, never resign without doing the math on what you're leaving on the table.
Gratuity in India: What You've Earned, How Much, and When You Can Claim It
Many Indian employees don't know exactly how much gratuity they're entitled to , and some lose it entirely because they resign a month before completing 5 years. Understanding the rules can mean the difference between a ₹0 and a ₹6–8 lakh payout.
Gratuity is governed by the Payment of Gratuity Act, 1972. It's payable to employees who have completed a minimum of 5 continuous years of service with the same employer. The formula is: Gratuity = (Last Basic Salary + DA) × 15/26 × Number of Years Served.
The "15/26" represents 15 days of salary for each completed year of service, where 26 is the number of working days in a month. Note that "completed years" uses a rule: a fraction of a year with more than 6 months counts as a full year.
For an employee with a ₹50,000 Basic+DA and 8 years of service: ₹50,000 × 15/26 × 8 = ₹2.3 lakhs tax-free. Gratuity up to ₹20 lakhs received from government-covered employers is fully tax-exempt.
If you're at 4.5 years, do not resign yet. Six more months unlocks your gratuity entitlement. This is one of those financial decisions where a half-year of patience is directly worth lakhs of rupees.
Frequently Asked Questions
When am I eligible for gratuity?
You become eligible after completing 5 years of continuous service with the same employer. The formula for gratuity is: (Last Drawn Salary × 15 × Years of Service) / 26.
Is gratuity taxable?
For government employees, gratuity is fully exempt from tax. For private sector employees, gratuity up to ₹25 Lakhs is tax-exempt. Any amount exceeding ₹25 Lakhs is taxable at your slab rate.
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