How to Calculate Gratuity in India

Everything you need to know about the Payment of Gratuity Act, 1972.

What is Gratuity?

Gratuity is a statutory benefit paid by an employer to an employee in recognition of their long-term service to the organization. It is governed by the Payment of Gratuity Act, 1972, which applies to establishments with 10 or more employees.

Eligibility Criteria

An employee is typically eligible for gratuity after completing 5 years of continuous service with the same employer. This limit is waived in cases of death or disablement.

The Gratuity Formula

The standard formula for calculating gratuity for establishments covered under the Act is:

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

Note: 'Last Drawn Salary' includes Basic Salary + Dearness Allowance (DA). '15/26' represents 15 days out of 26 working days in a month.

Tax Exemptions

For private-sector employees, gratuity is tax-exempt up to a maximum limit of ₹20 Lakhs during their entire career. Any amount exceeding this limit is taxable as per the employee's income tax slab.

Manage Statutory Benefits with WorkoTime

Calculating gratuity and other long-term benefits accurately is vital for financial planning and compliance. WorkoTime keeps a complete record of employee tenure and salary history, allowing you to calculate potential gratuity liabilities with a single click.