Gratuity Calculator India 2025: Rules, Formula & Tax Benefits Explained

Gratuity in India: Complete Guide 2025

Gratuity is a statutory retirement benefit paid by employers to employees as a token of appreciation for their service. It's governed by the Payment of Gratuity Act, 1972 and is one of the most important components of your retirement corpus.

What is Gratuity?

Gratuity is a lump sum amount paid by an employer to an employee when they leave the organization after completing a minimum period of continuous service. It's essentially a reward for loyalty and long service.

Who is Eligible for Gratuity?

Under the Payment of Gratuity Act, 1972:

Gratuity is payable on:

• •Superannuation (retirement)
• •Resignation after 5 years
• •Death (no minimum service required)
• •Disablement due to accident or disease

Gratuity Calculation Formula

For employees covered under the Payment of Gratuity Act:

Gratuity = (15 × Last Drawn Salary × Years of Service) / 26

For employees NOT covered under the Act:

Gratuity = (15 × Last Drawn Salary × Years of Service) / 30

Where:

• •Last Drawn Salary = Basic Salary + Dearness Allowance (DA)
• •15 = Number of days' wages per year of service
• •26 = Working days in a month (for covered employees)
• •30 = Calendar days in a month (for non-covered employees)

Gratuity Calculation Examples

Example 1: Private Sector Employee (Covered under Act)

• •Basic Salary: ₹40,000/month
• •DA: ₹10,000/month
• •Years of Service: 12 years

Gratuity = (15 × 50,000 × 12) / 26
Gratuity = 90,00,000 / 26
Gratuity = ₹3,46,154

Example 2: IT Professional (Not covered under Act)

• •Basic Salary: ₹60,000/month
• •DA: ₹0
• •Years of Service: 8 years

Gratuity = (15 × 60,000 × 8) / 30
Gratuity = 72,00,000 / 30
Gratuity = ₹2,40,000

Gratuity Amount by Salary and Tenure

Tax Treatment of Gratuity

1. Government Employees (Central/State/Local Authority)

• •Gratuity is fully exempt from income tax
• •No upper limit on exemption

2. Private Sector Employees (Covered under Act)

The least of the following three amounts is exempt:

1. •Actual gratuity received
2. •₹20,00,000 (maximum limit)
3. •Eligible gratuity as per formula

3. Private Sector Employees (Not covered under Act)

The least of the following three amounts is exempt:

1. •Actual gratuity received
2. •₹20,00,000 (maximum limit)
3. •Half month's salary for each completed year of service

Important: The ₹20 lakh exemption is a lifetime limit across all employers.

Tax Calculation Example

Scenario: Employee receives ₹25 lakh gratuity

• •Eligible gratuity (formula): ₹18 lakh
• •Maximum exemption: ₹20 lakh
• •Actual received: ₹25 lakh

Tax-exempt amount: ₹18 lakh (least of three) Taxable amount: ₹25L - ₹18L = ₹7 lakh (taxed as per slab)

New Labour Code Changes (2025)

The new labour codes bring significant changes:

Forfeiture of Gratuity

Gratuity can be forfeited (fully or partially) if:

1. •

   Termination for misconduct involving:

   • •Riotous or disorderly conduct
   • •Violence or moral turpitude
   • •Damage to employer's property
2. •

   Criminal offense during employment

How to Claim Gratuity

Step 1: Submit Form I (Application for Gratuity) to employer

Step 2: Employer must pay within 30 days of it becoming payable

Step 3: If delayed, employer pays simple interest from due date

Step 4: If denied, approach Controlling Authority under the Act

Gratuity vs Other Retirement Benefits

Tips to Maximize Gratuity

1. •Negotiate higher Basic + DA in salary structure
2. •Complete 5 years before switching jobs
3. •Keep records of all employment periods
4. •Claim from all employers (within ₹20L lifetime limit)
5. •Invest wisely - gratuity is a lump sum opportunity

Gratuity Investment Options

Once you receive gratuity, consider:

Frequently Asked Questions

Q: Is gratuity mandatory? A: Yes, for establishments with 10+ employees under the Payment of Gratuity Act.

Q: Can I get gratuity before 5 years? A: Only in case of death or disablement. Fixed-term employees need only 1 year under new codes.

Q: Is gratuity part of CTC? A: Yes, employers often include gratuity (4.81% of Basic) in CTC calculations.

Q: What if employer doesn't pay? A: File complaint with Controlling Authority. Interest and penalties apply for delays.

Use KnowYourFinance's Gratuity Calculator to estimate your gratuity amount accurately!