Gratuity Calculator & Resignation Rules | Direct Tax Exemption | Bharat Samvidhan
Calculate your gratuity payout under the Payment of Gratuity Act, 1972. Learn about the 5-year eligibility criteria and tax exemptions.
PAYMENT OF GRATUITY ACT, 1972 (STATUTORY BENEFIT)
Gratuity Calculator & Statutory Legal Guide
Estimate your statutory gratuity entitlement upon resignation, retirement, or superannuation. Understand the 15/26 wage calculation formula, Section 10(10) direct tax exemptions, and recovery procedures.
Input Employment Parameters
Monthly Basic Salary + Dearness Allowance (DA) in ₹
Note: Gratuity is computed strictly on Basic Salary and DA. HRA, performance bonuses, and allowances are statutorily excluded.
Total Completed Years of Continuous Service
Fractional Rule: Under Section 4(2), any service period in excess of 6 months (0.5 years) is rounded up to a full year.
Calculate Gratuity Payout
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Computation Summary
1. Statutory Architecture: The Payment of Gratuity Act, 1972
Gratuity is a statutory terminal retirement benefit payable to an employee as a token of appreciation for long and meritorious service. It is governed by the
Payment of Gratuity Act, 1972 (Act No. 39 of 1972)
:
Applicability (Section 1(3))
Applies to every factory, mine, oilfield, plantation, port, railway company, and shop or commercial establishment employing
10 or more persons
on any day in the preceding 12 months. Once applicable, it continues to apply even if headcounts fall below 10 (Section 1(3A)).
The 15/26 Formula Derivation (Section 4(2))
Why divide by 26? A monthly wage covers 26 working days (excluding 4 Sundays). One day's wage is calculated as
Monthly Basic ÷ 26
. The employee receives 15 days of wages for every completed year of service: 15 × (Monthly Basic ÷ 26) × Years
.
Statutory Ceilings & Tax Exemption (Sec 10(10))
The maximum statutory gratuity payable under Section 4(3) was raised to
₹20 Lakhs
. Under Section 10(10) of the Income Tax Act, 1961, gratuity received by central/state government employees is 100% tax-free, and for non-government employees, exempt up to ₹20 Lakhs.
Mandatory 30-Day Payment & 10% Delay Interest
Under Section 7(3), the employer must disburse gratuity within 30 days of resignation or retirement. Failure to pay attracts
mandatory simple interest at 10% per annum
under Section 7(3A) until actual payment is made.
2. Strict Forfeiture Rules & Recovery via District Collector
Strict Grounds for Forfeiture (Section 4(6)):
Gratuity cannot be forfeited arbitrarily or as punishment for ordinary termination. It can only be forfeited to the extent of quantifiable damage caused by wilful destruction of property, or wholly if termination was for riotous/violent conduct or an offense involving moral turpitude committed during duty.
Recovery as Arrears of Land Revenue (Section 8):
If an employer fails to pay gratuity, the employee can apply to the Controlling Authority (Labour Commissioner). The Authority issues a recovery certificate to the District Collector, who recovers the amount from the employer as arrears of land revenue along with 15% compound interest.
3. Frequently Asked Questions on Gratuity
Can an employee claim gratuity before completing 5 full years?
As a general rule under Section 4(1) of the Payment of Gratuity Act, 1972, completing 5 years of continuous service is mandatory. However, the second proviso to Section 4(1) creates an absolute statutory exception: the 5-year requirement is entirely waived if employment terminates due to death or permanent disablement of the employee caused by accident or disease. In such cases, gratuity is payable even if the employee worked for only one single month.
What is the 240-day continuous service rule in the 5th year?
Under Section 2A of the Act, if an employee in an establishment working 6 days a week completes 240 days of actual work during the 5th year of service (or 190 days in a 5-day week office or underground mines), courts treat it as a completed full year of continuous service. In multiple rulings, including by the Madras and Karnataka High Courts, employees completing 4 years and 240 days have been held fully eligible for statutory gratuity.
Can an employer withhold or forfeit gratuity due to misconduct?
An employer cannot forfeit gratuity arbitrarily or for minor disciplinary lapses. Under Section 4(6) of the Act, gratuity can be forfeited only to the extent of actual financial loss caused by the employee's wilful negligence or damage. Total forfeiture is permitted ONLY if services were terminated for riotous or disorderly conduct, violence, or an offense involving moral turpitude during the course of employment.
What is the penalty if an employer delays gratuity payment beyond 30 days?
Under Section 7(3) of the Act, the employer is legally obligated to arrange payment of gratuity within 30 days from the date it becomes payable. Under Section 7(3A), if the employer fails to pay within 30 days, they must pay compound interest on the gratuity amount at the rate notified by the Central Government (currently 10% per annum) for the entire period of delay.
How does the formula work for seasonal workers and daily wagers?
Under the second proviso to Section 4(2), in seasonal establishments (such as sugar mills, tea plantations, or canning factories) which do not operate year-round, the employer must pay gratuity at the rate of seven days' wages for each season worked by the employee.
Statutory Reference:
The Payment of Gratuity Act, 1972 (Act No. 39 of 1972) as amended, read with Central Government Notification S.O. 1420(E) and Section 10(10) of the Income Tax Act, 1961. Published by Bharat Samvidhan.