Gratuity Calculator

What is Gratuity and How to Calculate It?

Have you been planning for the future and worrying about your financial security when you leave a company? That’s where gratuity, a recognition of your dedication over the years, serves as a valuable safety net!

Gratuity is a monetary reward an employer offers to an employee in recognition of their long-term service and contribution to the company. It serves as a financial cushion during retirement or transition periods. This benefit is governed by the Payment of Gratuity Act of 1972 , ensuring standardised regulations across industries.

Who Qualifies for Gratuity in India?

You must fulfil the following criteria to qualify for gratuity:

• Minimum service: You must have completed at least five years of continuous service with the same employer . Individual or broken periods don't count.


• Covered establishment: You must work in an establishment with at least 10 employees. This applies to both public and private sector organisations.

How to Calculate Gratuity?

The gratuity amount is calculated based on the formula given below:

Gratuity = Last drawn salary × (15/26) × Number of years of service

• Last drawn salary: This includes your basic salary, dearness allowance (DA), and any other components considered part of your salary when the Act was enacted (1972).


• 15/26: This represents a fixed proportion of your salary linked to the gratuity calculation.


• Number of years of service: This includes the total years you've worked in a company. Any service exceeding 6 months in the final year rounded up to a full year.

Is Gratuity Taxable in India?

The gratuity amount you receive is exempt from income tax up to a limit of ₹20 lakhs. This means you get to keep a significant portion of it tax-free.

What are an Employer's Responsibilities Regarding Gratuity?

The Payment of Gratuity Act makes it mandatory for employers to fulfil their gratuity obligations towards eligible employees. This involves:

• Setting up a gratuity fund: Employers can create a dedicated fund within the company or opt for gratuity insurance to cater to future payouts.


• Disbursing the gratuity: Upon retirement, resignation, or termination (meeting eligibility criteria), the employer must pay the calculated gratuity within 30 days.

How to Use marketfeed’s Gratuity Calculator?

Step 1: Please enter your current monthly salary (Basic Salary + DA).

Step 2: Input the years of service.

The calculator does its magic and instantly shows the amount you will receive as gratuity from your employer!

In conclusion, gratuity in India stands as a testament to an employer's acknowledgement of an employee's dedicated service. It is a vital component of employee benefits, providing financial security and recognition for their contributions to the organisation. Gaining insight into the complexities of gratuity ensures that employers and employees can navigate this aspect of labour law with clarity and fairness.