What is Gratuity?

Gratuity is a benefit that is payable under the Payment of Gratuity Act 1972. Gratuity is a lump sum amount paid by the employer to the employee for the services rendered by them during the period of employment for five or more years with the company. It is a token of appreciation for the services they have provided towards the company. However, Gratuity is paid only to employees who complete five or more years with the company.

What is a Gratuity Calculator?

Online Gratuity Calculator helps you to estimate the amount of money you will receive if you plan to leave a job after a minimum of five or more years of service with the company. However, there are various rules for gratuity calculation that you should keep in mind beforehand. We will look at 2 regulations / categories that will help you estimate your gratuity amount.

How does an online Gratuity Calculator work?

Gratuity Calculation Formula is based on 2 Categories prescribed by Payment of Gratuity Act, 1972 -

• Category 1: Employees associated with organization covered under the act
• Category 2: Employees associated with organization not covered under the act

Category 1: Employees covered under the Payment of Gratuity Act, 1971
Gratuity (G) = n*b*15/26 where,

n = The number of completed years in the current organization
b = the Last drawn basic monthly salary (plus dearness allowance, the commission received on sales, if any)

The above formula is based on a last-drawn salary of 15 days for each year of service completed or part of it exceeding six months.

For example, Mr. Umesh is an employee of XYZ Pvt. Ltd. for 8 years.

His last drawn salary is INR 1,25,000. Below is the gratuity amount Mr. Umesh will receive.

Gratuity = 1,25,000*8*(15/26) = INR 5,76,923

In the above example, the year of experience is 8 years because Mr. Umesh worked for less than six months in his last year of service. Similarly, if Mr. Umesh would have worked for 8 months in his last year of service, then 9 years would be considered for computation.

Category 2: Employees not covered under the Payment of Gratuity Act, 1971
Gratuity (G) = n*b*15/30 where,

n = The number of completed years in the current organization
b = the Last drawn basic monthly salary (plus dearness allowance, the commission received on sales, if any)

The amount of gratuity payable to the employee is calculated based on half a month’s basic salary for each completed year.

For example, Mr. Umesh is an employee of DEF Pvt. Ltd. for 9 years and 7 months.

His last drawn salary is INR 1,25,000. Below is the gratuity amount Mr. Umesh will receive.

Gratuity = 1,25,000*9*(15/30) = INR 5,62,500

Here, the number of years is taken based on each completed year. Although Mr. Umesh worked with the company for 9 years and 7 months, his tenure will be considered as 9 years and not 10.

How to use Dhan Gratuity Calculator?

Using the Dhan Gratuity calculator is simple. You just must input the below details:

• Monthly Salary (Basic + Dearness Allowance)
• Mention Years of Service

With just above 2 details our online gratuity calculator does the calculation and displays the Gratuity Amount.

How can a Gratuity Calculator help you?

Here is how an online Gratuity calculator help you:

• Easily determine the accurate gratuity value free of cost
• Hassle-free online calculation
• Save time from manual calculation
• The calculator can be accessed from anywhere at anytime

With just above 2 details our online gratuity calculator does the calculation and displays the Gratuity Amount.

How is Tax Calculated on Gratuity?

Gratuity amount is taxable under the ‘Income from Salary’. Under the Income Tax Act, the IT department has declared gratuity tax-exempt up to a certain limit. They are different for government and non-government employees covered under the Act, and non-government employees not covered under the Act.

• For government employees, the entire gratuity amount is fully exempt from tax.


• For non-government employees covered under the Act, the maximum tax exemption is least of the following:

15/26* last drawn salary x completed a year of service or part thereof in excess of 6 months
INR 20,00,000 is the gratuity limit
Gratuity received

• For non-government employees not covered under the Act, the maximum tax exemption is least of the following:

Half month’s average salary x Completed years of service
INR 10,00,000 is the gratuity limit
Gratuity received