Table of Contents
Gratuity is a lump-sum payment made by an employer to an employee in recognition of long-term service.
The 1 Finance Gratuity Calculator helps you calculate gratuity online by applying the correct calculation method and relevant provisions of the Income-tax Act, 1961, based on your employment coverage—quickly and accurately, in line with the Payment of Gratuity Act, 1972 and the latest changes under the New Labour Codes.
Is your employer covered under the Payment of Gratuity Act, 1972?
Are you employed on a fixed-term contract?
Are you a government employee?
Gratuity is calculated based on your years of service and your last drawn monthly salary (50% of total remuneration).
Gratuity is money your employer pays you as a gratitude for your years of service. It is typically paid upon retirement, resignation after the minimum qualifying period, or completion of a fixed-term employment contract.
Changes in gratuity rules after New Labour Codes
The New Labour Codes notifies changes to gratuity rules in India, including gratuity eligibility for fixed-term employees and expanded coverage of establishments. The gratuity is calculated as per latest changes notified under the New Labour Codes.
1. When employee is covered under the Payment of Gratuity Act
Formula
Gratuity = (15 / 26) × Last Drawn Monthly Wages × Completed Years of Service
Calculation Rules
Example
(15 × 40,000 × 7) / 26 = ₹1,61,538
2. When employee is NOT covered under the Payment of Gratuity Act
Formula (commonly used
Gratuity = (15 / 30) × Last Drawn Monthly Wages × Completed Years of Service
Calculation Rules
Example
(15 × 40,000 × 7) / 30 = ₹1,40,000
Covered under the Payment of Gratuity Act, 1972
Not Covered under the Payment of Gratuity Act, 1972
Example of Gratuity Calculation
Applicable Gratuity Formula
Gratuity = 15/26× Last Drawn Monthly Wages × Completed Years of Service
Calculation
Gratuity = (15 / 26) × 50,000 × 7
= 28,846 × 7
= ₹2,01,922
Tax benefits on gratuity:
If covered under the Payment of Gratuity Act,1972
Gratuity = (Last drawn wages × 15 × Completed years of service) ÷ 26
If not covered under the Payment of Gratuity Act, 1972
The calculator shows estimated gratuity and taxable portion for non-covered employees.
By entering a few simple details, you can instantly check your gratuity:
The calculator:
Payment timelines depend on applicable laws or employer policy.
For employees not covered under the Payment of Gratuity Act, gratuity calculation is indicative and based on company policy and Income-tax Act provisions. Actual gratuity payable depends on employer terms.
"Rounding rules" apply specifically to employees covered under the Payment of Gratuity Act. If your service period includes a fraction of a year exceeding six months, it is rounded up to the next full year.
Example: If you served for seven years and seven months, the calculator will treat it as 8 years.
Note: For employees not covered under the Gratuity Act, rounding is usually not mandatory and depends on specific company policy.
Government employees receive gratuity fully tax-free.
Private sector employees have tax exemption up to a specified limit (currently ₹20 lakh). Amounts above the exempt limit may be taxable.
The 1 Finance Gratuity Calculator helps you estimate both the exempt and taxable portions.
No, it is not a monthly deduction like PF. Gratuity is a statutory benefit entirely funded by the employer. You do not contribute any portion of your monthly "in-hand" salary toward it.
Note on CTC: Many companies list gratuity as a component of your cost to company (CTC). So it could be a part of your overall CTC.
Since gratuity is only paid at the time of exit, you won't see it in your monthly bank credits. You can check it in the following ways:
Offer letter/Joining letter: Your offer letter or annual increments will show the 'gratuity' component, usually calculated as approximately 4.81% of your Basic + DA.
Full & final Settlement: When you resign or retire, your employer provides an F&F statement that explicitly lists the total gratuity amount payable to you.
HR portal: Many companies have internal portals where you can view your accrued benefits or "Gratuity Provision" to date.
You can use the 1 Finance Gratuity Calculator to get an instant estimate. Here is the process:
1) Enter your last drawn salary (sum of your monthly Basic + DA).
2) Enter the total years you have worked (remember the 5-year eligibility rule for permanent employees).
3) Select coverage: Choose whether your company is covered under the Payment of Gratuity Act, 1972 (typically any company with 10+ employees).
4) Check how much gratuity you will get.
Generally, no. According to the Payment of Gratuity Act, 1972, you must complete a minimum of five years of continuous service with the same employer to be eligible for a gratuity payout.
However, there are two important exceptions:
Death or Disablement: The five-year requirement is waived if the service is terminated due to the employee's death or permanent total disablement.
The 4 Year & 240 Days Rule: Several court rulings have established that if an employee completes 4 years and 10 months (specifically 240 days of work in the 5th year), they may be eligible for the full gratuity benefit.
The results generated by this gratuity calculator are indicative and for informational purposes only. Actual gratuity payable may vary depending on employer policy, employment terms, and applicable laws, including the Payment of Gratuity Act, 1972, and Income-tax provisions (Sections 10(10)(i/ii/iii)). 1 Finance does not guarantee the accuracy of results and users should consult their employer or a qualified tax/professional advisor for exact calculations.