Gratuity Calculator — Payment of Gratuity Act

Who is covered by the Payment of Gratuity Act

Any factory, mine, oilfield, plantation, port, railway company, shop or establishment with 10 or more employees on any day in the preceding twelve months. Once covered, an establishment stays covered even if headcount later drops below ten. In practice this means almost every formal employer in India.

Employers outside the Act may still pay gratuity voluntarily, usually with a 30-day divisor instead of 26, which produces a slightly smaller figure for the same service.

Why gratuity feels smaller than expected

Because it is calculated on basic + DA only. If your gross salary is ₹1,00,000 but basic is ₹40,000, your gratuity is computed on ₹40,000. Many private employers deliberately keep basic at 30-40% of CTC, which reduces gratuity, PF and leave encashment together.

When evaluating a job offer, the basic-to-CTC ratio matters more than most candidates realise. Two offers with identical CTC can differ by lakhs in long-run retirement benefits.

Tax treatment

• Government employees — entirely exempt under Section 10(10)(i), with no ceiling.
• Covered by the Act — exempt up to the least of ₹20 lakh, actual gratuity received, or 15 days' salary per completed year.
• Not covered by the Act — exempt up to the least of ₹20 lakh, actual gratuity, or half a month's average salary (last 10 months) per completed year.

The ₹20 lakh exemption is a lifetime limit across all employers, not a per-job limit. If you claimed ₹8 lakh exempt at a previous employer, only ₹12 lakh of headroom remains.

What to do with the payout

A gratuity cheque arriving at retirement is usually the largest single sum a salaried person ever receives. Parking all of it in a fixed deposit is the default choice and usually the wrong one: at a 30% slab, a 7% FD nets about 4.9%, which barely matches inflation. A systematic withdrawal plan from a hybrid fund typically delivers both better post-tax income and inflation protection.