How to Calculate Gratuity in India: Formula and Examples

Gratuity is a lump sum an employer pays to an employee after long service. In India it is governed by the Payment of Gratuity Act, and the formula is fixed.

Quick answer

Gratuity = last drawn monthly basic + dearness allowance × 15 ÷ 26 × completed years of service. A part year of six months or more is counted as a full year.

Eligibility

• Generally five years of continuous service with the employer.
• The five-year condition may be relaxed in case of death or disability.
• Applies to establishments covered by the Act (usually 10 or more employees).

Worked example

Last basic + DA = ₹50,000. Service = 8 years 7 months, so 9 years after rounding.

Gratuity = 50,000 × 15 ÷ 26 × 9 = ₹2,59,615 (rounded).

Using the calculator

1. Enter the last drawn monthly basic plus DA.
2. Enter years and months of service.
3. Read the gratuity amount.

Points to remember

• The tax exemption on gratuity has a statutory ceiling for private employees; the amount above it is taxable. Check the latest limit.
• Employers not covered by the Act may use a different formula (15 ÷ 30) in their policy.
• Gratuity is separate from provident fund and leave encashment.
• Keep your appointment letter and service records for claims.

This tool estimates the statutory formula; your employer's policy and tax rules decide the final figure.