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Gratuity Amount

What is Gratuity?

Gratuity makes for a small yet significant part of an employee salary.
Let's learn more about it!

What is a Gratuity Calculator?

A gratuity calculator is a tool used to calculate the gratuity amount for an employee. An employee must complete a minimum of 4 years 8 months of uninterrupted service in the organisation to be eligible for the gratuity, which is usually paid when an employee leaves.


Token of Gratitude

Under the Payment of Gratuity Act, 1972, gratuity is offered as a token of gratitude for an employee’s services to the company, hence the name ‘gratuity.’


Part of gross Compensation

Gratuity depends on an employee's last drawn
basic salary and the number of years of service in
a company.


Gratuity Calculation Formula

For employees who fall under the Payment of Gratuity Act 1972, the
formula used for calculating gratuity amount is below:

Gratuity = (Years of service x Last drawn basic salary) 15/26,

where the last drawn salary includes basic salary and dearness allowance.

Points to be noted

In an employee's last year of service, if the number of months is more than six months,
it is rounded ‘up’ to the nearest integer. Otherwise, it is rounded ‘down.’ For example, 10 years 7 months tenure = 11 years, while 10 years 5 months = 10 years, while gratuity calculation.

If the gratuity amount is more than Rs. 20 lakh, the surplus amount is treated as ex-gratia.

As per the Gratuity Act, an employer can forfeit the gratuity payment, partially or wholly, in case of employee misconduct or act of violence.

For more information on Gratuity, please read this crisp blog post.

Eligibility Criteria for Gratuity in India

Employees are eligible for gratuity if:

They are on superannuation or retirement, i.e. when an employee attains a pre-fixed age defined in a firm’s superannuation plan. A superannuation plan is the pension plan of a company.

They resign after completing five years of uninterrupted employment.

They are disabled due to an accident or sickness, irrespective of the employment period

In case of an employee's death, the gratuity amount is paid to the nominee.

Taxation Rules for Gratuity


The taxation rules around gratuity depend on whether an employee is employed with a government or a private entity.

The entire gratuity amount is exempted from income tax for government employees, be it central, state, or local.

For employees working in private companies, the least of the following three is exempted from income tax:

The eligible gratuity

The actual gratuity amount received

Rs. 20 lakh

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