Calculate Gratuity Online Under Payment of Gratuity Act

Meaning of Gratuity under Code on Social Security, 2020

Gratuity is a statutory monetary benefit mandated by Indian labor law as a financial separation and retirement benefit awarded in recognition of an employee's continuous service. Governed by Chapter V (Sections 53 to 57) of the Code on Social Security, 2020 (which subsumes and updates the historical Payment of Gratuity Act, 1972 following the implementation of the four Labour Codes effective 21 November 2025), gratuity is payable to employees upon retirement, resignation, superannuation, or termination.

Under Section 53(1), any establishment employing 10 or more individuals is legally required to disburse gratuity. While regular permanent employees require 5 continuous years of service, Section 53(2) second proviso introduces a landmark right for fixed-term employees, who are entitled to pro-rata gratuity upon completing just 1 year of service. For death or permanent disablement, all tenure requirements are waived.

What is a Gratuity Calculator?

A gratuity calculator is an accurate labor and tax modeling tool that computes statutory gratuity based on statutory wage definitions, service rounding rules, establishment coverage, and income tax exemption ceilings. It distinguishes between your calculated statutory payout, actual employer payment, and the tax-exempt amount.

How to Use the Gratuity Calculator

1. Select Act Coverage: Choose Covered (26-day working divisor) if your company employs 10 or more persons, or Non-Covered (30-day calendar divisor).
2. Select Employee Category: Choose between Regular (5+ Yrs), Fixed-Term (1+ Yr), or Death/Disablement.
3. Enter Basic Pay & Allowances: Input monthly Basic Pay, Dearness Allowance (DA), and other monthly allowances to verify if the 50% allowance add-back applies under Section 2(88).
4. Specify Completed Tenure: Enter years and additional months of service to view accurate tenure rounding.
5. Review Payout & Tax Breakdown: Instantly inspect qualifying monthly wage, estimated gratuity, tax-exempt ceiling (₹20 Lakhs), and taxable balance.

Statutory Gratuity Formulas (Covered vs. Non-Covered)

Under Indian statutory standards, the formula is determined by whether the establishment falls under the Act:

Revised Wage Definition & The 50% Allowance Rule

Section 2(88) of the Code on Social Security, 2020 standardizes the definition of "Wages" across all Indian labor codes. Under the 50% Allowance Rule:

Covered vs. Non-Covered Employees & Tenure Rounding

Tax Exemption Ceilings & Income Tax Treatment

Under Section 10(10) of the Income-tax Act:

• Private Sector Non-Government Employees: The maximum tax-exempt gratuity is capped at ₹20,00,000 (₹20 Lakhs) under Section 10(10)(ii). Any gratuity disbursed in excess of ₹20 Lakhs is added to gross salary and taxed at applicable slab rates.
• Central Government Civil Employees: The maximum tax exemption ceiling was enhanced to ₹25,00,000 (₹25 Lakhs) effective 1 January 2024 (DoPT OM No. 28/03/2024-P&PW(B)/Grid dated 30 May 2024) following the Dearness Allowance 50% milestone.
• Actual Payable vs. Tax-Exempt: An employer is legally permitted to pay a gratuity higher than the statutory ceiling based on company policy or employment contracts; however, any excess beyond the statutory ceiling remains taxable.

*Primary references: Ministry of Labour & Employment: labour.gov.in | Income Tax Department: incometaxindia.gov.in