Gratuity calculator
What is payable on exit, from last drawn basic plus DA and completed years — with the five-year rule and the exemption cap explained.
Gratuity calculator
Gratuity under the Payment of Gratuity Act, for employees who complete five years of continuous service.
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How gratuity is calculated
Gratuity is paid to employees who complete five years of continuous service, and is calculated as:
> Last drawn basic + DA × 15 ÷ 26 × completed years of service
The 26 is the assumed number of working days in a month, and the 15 represents fifteen days' wages for each completed year. The total is capped at ₹20,00,000.
What people get wrong
The five-year rule has exceptions. Death and disablement are not subject to it — gratuity is payable regardless of tenure.
Basic is not gross. Gratuity is computed on basic plus dearness allowance, not on the full salary. Using gross inflates the figure substantially.
The final year counts if it is more than six months. Four years and seven months is widely treated as five completed years, and several High Courts have read it that way.
Tax exemption is separate from the calculation. What is payable and what is taxable are two different questions — check the exemption limit applicable to the employee before deducting.
A worked example
On a last drawn basic plus dearness allowance of ₹25,000, after six completed years:
25,000 × 15 ÷ 26 × 6 = ₹86,538.
The 26 is the assumed number of working days in a month; the 15 is fifteen days' wages for each completed year of service.
Note that the formula uses basic plus DA — not gross, and certainly not CTC. Using gross overstates the liability substantially, which matters when you are provisioning for it rather than paying it.
Five years, read properly
The five-year continuous service condition is not applied as literally as it reads. Four years and seven months has repeatedly been held to satisfy it, on the basis of what counts as a year of continuous service under the Act.
The condition does not apply at all where employment ends through death or disablement.
The exemption is capped, and computed
Gratuity is exempt from tax up to a prescribed ceiling, under a formula that differs depending on whether the employee is covered by the Payment of Gratuity Act. Above the ceiling it is taxable.
So the exemption should be computed rather than assumed — particularly for long-serving senior employees, where the amount payable can exceed the ceiling comfortably.
Gratuity calculator FAQs
Is gratuity payable when an employee resigns?
Yes, provided the five-year condition is met. It is not limited to retirement, and it is not forfeited because the employee chose to leave.
Does four years and seven months qualify?
It has repeatedly been held to. Refusing on a strict reading of "five years" is a position that has not fared well, and it is worth taking advice before doing so.
Which salary goes into the formula?
Last drawn basic plus dearness allowance. Not gross, not CTC. This is the most common error, and it inflates the figure by a wide margin.
When must gratuity be paid?
It carries its own statutory timeline from the date it becomes payable, and it should not be allowed to wait for the rest of the full-and-final settlement to be agreed.
Does the calculator handle employees not covered by the Act?
The formula differs for covered and non-covered employment, most visibly in the treatment of the monthly divisor. Check which basis applies before using an output in a settlement letter.
Do we count a part-year of service?
Service beyond a completed year is rounded by a rule rather than pro-rated freely, and the treatment of a part-year above six months is the point most calculators get wrong.
Does unpaid leave reduce the service period?
Continuous service has its own definition and is not simply days present. Long unpaid absence can matter; ordinary leave generally does not. Do not net it off by instinct.
Can we use this figure in a full-and-final settlement?
Use it as a check, not as the final authority. The settlement should be produced from the payroll record, with this as a sanity test — if the two disagree, that disagreement is the useful signal.
Stop calculating this one employee at a time
Klok computes gratuity at full-and-final settlement from the employee’s actual joining date and last drawn salary — so the number in the settlement is derived from the record, not from a spreadsheet somebody rebuilt.