Gratuity Calculator

The formula, and the three things people get wrong

Gratuity for an employer covered by the Payment of Gratuity Act is fifteen divided by twenty-six, multiplied by your last drawn basic plus dearness allowance, multiplied by your completed years of service. Twenty-six is the assumed number of working days in a month - thirty days less four Sundays - and fifteen days' wages is the statutory entitlement for each year worked.

Three errors account for almost every wrong answer. The first is using gross salary or CTC instead of basic plus DA, which inflates the result by roughly two and a half times. The second is using 15/30 for a covered employer, which understates it by about thirteen per cent. The third is mishandling the part-year.

The six-month rounding applies only to covered employers

If your employer is covered by the Act, a part-year of six months or more rounds the year up. Six years and six months counts as seven; six years and five months counts as six. If your employer is not covered - fewer than ten employees - there is no rounding up at all, and the formula uses 15/30 on the average of your last ten months' salary rather than the last drawn figure.

• Covered: 15/26 × last drawn basic + DA × completed years, part-year of six months or more rounds up
• Not covered: 15/30 × average of last ten months × completed years, no rounding up
• Five years of continuous service is normally required, waived on death or disablement
• The statutory exemption cap applies to the tax-free portion, not to what can be paid

The cap limits the exemption, not the payment

The statutory ceiling is a limit on how much gratuity is exempt from tax, not on how much your employer may pay you. An employer is free to pay more, and many do; the excess is simply added to your salary income and taxed at your slab rate. A calculator that caps the payable figure rather than the exempt figure gets this backwards and understates what you are owed.

What it will not do

It will not tell you whether you are entitled to gratuity. Eligibility turns on continuous service as defined by the Act, on your employer's coverage, and occasionally on litigated questions about what counts as an interruption. We compute the formula and show you the eligibility threshold as a note, because someone at four years and seven months is asking precisely because they are deciding whether to stay.

It also does not assemble a full-and-final settlement, model leave encashment, or cover the separate rules for government employees, who are fully exempt.