Gratuity Calculator India: How to Calculate & Check Your Gratuity in 2025

Want to know how much gratuity you’ll get in 2025? Use our free gratuity calculator & understand the formula, eligibility, tax rules & claim process. Get expert tips to maximize your benefits and avoid taxes. Read now to secure your financial future!

Gratuity is an essential financial benefit that employees receive as a token of appreciation for their long-term service to an organization. Governed by the Payment of Gratuity Act, 1972, gratuity is a one-time lump sum amount paid by an employer to an employee upon resignation, retirement, or death. This financial reward serves as a crucial part of retirement planning, ensuring employees have a financial cushion after years of service.

In India, gratuity is mandatory for organizations with 10 or more employees, making it a significant component of employee benefits. However, many employees are unaware of how gratuity is calculated, who is eligible, and how they can maximize their gratuity payout.

Why is Gratuity Important?

• Provides financial security after retirement or resignation.
• Encourages long-term employment and loyalty.
• Exempted from income tax up to a certain limit.
• Helps employees plan for their post-service life effectively.

In this article, we will explain how gratuity is calculated in India, who is eligible, taxation rules, and how you can use an online gratuity calculator to check your gratuity amount instantly.

What is a Gratuity Calculator?

A Gratuity Calculator is an online tool that helps employees quickly estimate the gratuity amount they are entitled to receive based on their last drawn salary, years of service, and applicable rules under the Payment of Gratuity Act, 1972.

Instead of manually applying the gratuity formula, a Gratuity Calculator simplifies the process by generating an instant estimate. This tool is particularly useful for:

• Employees planning their financial future.
• HR professionals handling gratuity settlements.
• Employers ensuring compliance with gratuity rules.
• Retiring employees estimating their final payout.

Key Benefits of a Gratuity Calculator

• Saves Time – No need for manual calculations.
• Accurate Estimates – Uses the official gratuity formula.
• Helps in Financial Planning – Know your benefits in advance.
• Easy to Use – Just enter your details and get instant results.

With a Gratuity Calculator, employees can plan their retirement funds effectively and ensure they receive the correct gratuity amount as per their tenure and salary.

Eligibility for Gratuity in India

Not every employee is eligible for gratuity. The Payment of Gratuity Act, 1972, specifies clear rules regarding eligibility.

Who is Eligible for Gratuity?

1. Employees who have completed at least 5 years of continuous service with an organization.
2. Employees working in organizations with 10 or more employees.
3. Both private sector and government employees covered under the Act.
4. Employees who retire, resign, or are terminated due to health conditions or other valid reasons.
5. In case of an employee’s death, gratuity is paid to the nominee or legal heir, even if the employee has not completed five years.

Who is NOT Eligible for Gratuity?

1. Employees with less than 5 years of service (except in case of death or disability).
2. Workers in small firms with fewer than 10 employees.
3. Employees dismissed for misconduct or disciplinary actions.

Understanding gratuity eligibility is crucial for employees so they can plan their service tenure effectively and avoid missing out on this financial benefit.

How is Gratuity Calculated in India?

The calculation of gratuity in India is based on a simple formula defined under the Payment of Gratuity Act, 1972. This formula takes into account the employee’s last drawn salary, years of service, and a fixed multiplier.

Gratuity Calculation Formula

For employees covered under the Gratuity Act, the gratuity amount is calculated as:

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

Where:

• Last Drawn Salary = Basic Salary + Dearness Allowance (DA)
• 15 = Fixed number of days used in calculation (as per Gratuity Act)
• 26 = Number of working days in a month (excluding Sundays)

Example 1: Private Sector Employee (Covered Under the Gratuity Act)

• Employee’s Basic Salary + DA = ₹50,000
• Years of Service = 10 years

Gratuity=(50,000×15×10)÷26=₹2,88,461

Thus, the employee is entitled to a gratuity of ₹2,88,461 after completing 10 years of service.

Gratuity Calculation for Employees NOT Covered Under the Act

For employees not covered under the Gratuity Act, the calculation formula is slightly different:

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

Here, the divisor is 30 instead of 26, which results in a slightly lower gratuity amount.

Example 2: Private Company Employee (Not Covered Under the Act)

• Employee’s Basic Salary + DA = ₹50,000
• Years of Service = 10 years

Gratuity=(50,000×15×10)÷30=₹2,50,000

Since the divisor is 30 instead of 26, the gratuity amount is lower compared to employees covered under the Act.

Key Points to Remember About Gratuity Calculation

• Rounding Off Rule: If the service period includes more than 6 months, it is rounded up to the next year.
• Maximum Gratuity Limit: As per current laws, the maximum gratuity payable is ₹20 lakh.
• Employer Contribution: Gratuity is fully paid by the employer; employees do not contribute to it.

Example of Rounding Off:

• 7 years 4 months → Considered as 7 years
• 7 years 7 months → Rounded up to 8 years

Taxation on Gratuity in India

Gratuity is a tax-free benefit, but the exemption limit varies for different types of employees. Here’s how taxation on gratuity works:

Tax-Free Limit on Gratuity

According to the Income Tax Act, the tax exemption limit on gratuity is:

Example: If a private sector employee receives ₹25 lakh as gratuity, the taxable amount is ₹5 lakh (since ₹20 lakh is tax-free).

How is Gratuity Taxed for Private Employees?

If gratuity exceeds the tax-free limit, it is taxed as “Income from Salary” based on the employee’s tax slab:

• Income up to ₹7 lakh: No tax (under the new regime rebate).
• Income above ₹7 lakh – Taxed as per slab rates (5%, 10%, 15%, 20%, 30%).

Example:

• If the taxable gratuity is ₹5 lakh and the employee falls under the 30% tax slab, tax liability = ₹1.5 lakh.

Tip: To reduce tax on gratuity, employees can invest it in tax-saving instruments like PPF, ELSS, or NPS.

Online Gratuity Calculator: How to Use?

In today’s digital age, manually calculating gratuity can be time-consuming and prone to errors. To make things easier, employees can use an online Gratuity Calculator, which provides instant and accurate gratuity estimates based on salary and tenure.

Steps to Use a Gratuity Calculator

Using an online Gratuity Calculator is simple and requires only a few inputs:

1. Visit a Reliable Gratuity Calculator – You can use HR Calcy or any other trusted gratuity calculator.
2. Enter Your Last Drawn Salary – This includes Basic Salary + Dearness Allowance (DA).
3. Enter Total Years of Service – The calculator will automatically round off if required.
4. Choose Employment Type – Government or Private Sector.
5. Click on Calculate – The tool will instantly show your gratuity amount.

Example: If an employee enters ₹60,000 as last drawn salary and 12 years of service, the calculator will generate:

(60,000×15×12)÷26=₹4,15,384

Why Use an Online Gratuity Calculator?

• Saves time and eliminates manual errors.
• Provides accurate and instant results.
• Helps employees plan their financial future.

Latest Gratuity Rules & Updates (2025)

With changing government policies and economic conditions, gratuity rules are updated periodically. In 2025, employees should be aware of the following important updates:

Increase in Tax-Free Gratuity Limit (Expected Update)

The Indian government has been considering increasing the tax-free gratuity limit from ₹20 lakh to ₹25 lakh to keep up with inflation and rising salaries. If implemented, this will benefit high-earning employees by reducing their tax burden.

New Wage Code and Impact on Gratuity

The New Wage Code 2024, expected to be fully enforced in 2025, will change how gratuity is calculated:

• Basic salary must be at least 50% of total CTC – This may increase gratuity amounts for many employees.
• Gratuity payable for fixed-term contract employees – Even short-term employees (e.g., less than 5 years) may become eligible for gratuity under the revised law.

Gratuity for Gig and Platform Workers

The government is considering gratuity benefits for gig workers (such as Zomato, Swiggy, Ola, Uber drivers) under new labor laws. This will provide financial security to freelancers and contractual workers.

Summary of 2025 Gratuity Updates

How to Claim Gratuity? Step-by-Step Process

Once an employee completes the required service period, they can apply for gratuity. The process involves submitting a formal request to the employer and following the due procedure.

Step-by-Step Guide to Claiming Gratuity

Step 1: Check Your Eligibility

Before applying, ensure that:

• You have completed at least 5 years of continuous service.
• You are retiring, resigning, or leaving due to disability/death.
• Your employer is covered under the Payment of Gratuity Act, 1972.

Step 2: Fill Out Gratuity Claim Form (Form I)

The employee must submit Form I to the employer within 30 days of leaving the job. This form requires details such as:

• Employee’s name and designation
• Last drawn salary
• Total years of service
• Date of resignation/retirement
• Employer details

Step 3: Employer Verification & Processing

Once the employer receives the claim, they:

• Verify the details and approve the request.
• Calculate the gratuity amount based on the formula.
• Issue an approval letter within 15 days of receiving the claim.

Step 4: Receive Payment

The employer must disburse the gratuity amount within 30 days from approval. The amount is usually paid via:

• Bank Transfer (NEFT/RTGS)
• Cheque or Demand Draft

Important: If the employer delays payment beyond 30 days, they must pay interest on the amount as per the government-set rate.

Documents Required for Gratuity Claim

To claim gratuity, employees need the following documents:

For Regular Employees:

• Duly filled Gratuity Claim Form (Form I)
• Copy of resignation/retirement letter
• Salary slips or salary certificate
• Bank account details for payment

For Nominee in Case of Death of Employee:

• Death certificate of the employee
• Relationship proof of nominee (Aadhaar/PAN)
• Form J (for nominees) or Form K (for legal heirs)

Tip: Always submit your claim as early as possible to avoid delays.

Tax on Gratuity & How to Save Tax on Gratuity Amount

While gratuity is a great financial benefit for employees, it may be taxable in certain cases. However, there are legal ways to minimize or even avoid tax on your gratuity amount.

Taxation Rules for Gratuity in India (2025)

The taxability of gratuity depends on whether the employee is covered under the Payment of Gratuity Act, 1972:

Government Employees (Central/State/PSU)

• Fully Exempt from Tax – Government employees do not have to pay any tax on gratuity.

Private Sector Employees (Covered under Gratuity Act)

• Gratuity is tax-free up to ₹20 lakh in a lifetime. Any amount beyond ₹20 lakh is taxed as per the employee’s income slab.

Private Sector Employees (Not Covered under Gratuity Act)

• For those not covered, the tax-free limit is lower:

Minimum of:

• ₹20 lakh, or
• Actual gratuity received, or
• (Last drawn salary × 15 × Number of years of service) ÷ 30

How to Reduce or Avoid Tax on Gratuity?

– Use the ₹20 Lakh Exemption Wisely: If you switch jobs frequently, ensure that your total lifetime gratuity does not exceed ₹20 lakh to avoid taxation. – Opt for Voluntary Retirement (VRS) Benefits: If your employer offers VRS with tax benefits, you can receive additional tax-free gratuity. Invest in Tax-Saving Instruments: Employees can invest their gratuity amount in tax-saving options like:

• Public Provident Fund (PPF)
• National Pension System (NPS)
• Fixed Deposits (5-Year Tax Saver)

– Spread Gratuity Across Financial Years: If your employer allows it, receive gratuity in two different financial years to reduce tax liability in one financial year.

Tip: Consult a tax advisor before making any decisions regarding tax on gratuity.

Conclusion: Why Gratuity is an Essential Employee Benefit

Gratuity is not just a financial payout—it is a reward for years of dedicated service and plays a key role in retirement planning. Whether you work in the government sector or private sector, understanding how gratuity is calculated, claimed, and taxed will help you make the most of this benefit.

Key Takeaways:

1. Gratuity is payable after 5 years of service (except in case of death/disability).
2. Formula: (Last drawn salary × 15 × No. of years of service) ÷ 26.
3. Tax-free limit: ₹20 lakh for private employees, fully exempt for government employees.
4. New Wage Code (2025) may bring changes, including benefits for short-term employees.
5. Use an online gratuity calculator for accurate and instant calculations.

As gratuity laws evolve, employees should stay updated on government policies and use smart tax-saving strategies to maximize their benefits. A gratuity calculator helps them in real time accurate calculation of gratuity basis on their eligibility

Share this article with your colleagues to help them understand their gratuity benefits better!

FAQ

What is gratuity and who is eligible to receive it?

Gratuity is a financial benefit given by an employer to an employee as a token of appreciation for long-term service. An employee must have completed at least 5 years of continuous service with the same employer to be eligible.

How is gratuity calculated in India?

Gratuity is calculated using the formula: (Last drawn salary × 15 × No. of years of service) ÷ 26. For private sector employees, the tax-free limit is ₹20 lakh.

Is gratuity taxable in India?

For government employees, gratuity is fully tax-exempt. For private sector employees, gratuity up to ₹20 lakh is tax-free. Any amount beyond this is taxable as per income tax slabs.

Can I calculate my gratuity online?

Yes, you can use an online gratuity calculator to quickly estimate your gratuity amount based on your salary and years of service.

What happens to gratuity if an employee dies before completing 5 years?

If an employee passes away before completing 5 years of service, gratuity is still payable to their nominee or legal heir.