What the calculator computes
The calculator applies the Payment of Gratuity Act formula — (Basic+DA) × 15/26 × years of service — to your last drawn monthly Basic+DA and total years of service, to estimate the lump sum gratuity payable when your employment ends, whether through retirement, resignation, or termination after the minimum qualifying period.
Why the divisor is 26, not 30
The formula uses 26 as the divisor rather than 30 because it's based on the assumption of 26 working days in a month, excluding 4 weekly offs — a convention that comes from the original labour law framework rather than actual calendar days. Multiplying by 15 represents half a month's wages (15 out of the assumed 26 working days) for each year of completed service.
This detail matters because it's a fixed part of the statutory formula, not something that varies by employer — unlike some other salary calculations, employers covered under the Act can't substitute a different divisor even if their own payroll conventions use 30 days.
The rounding rule that can add a full year's gratuity
One of the more consequential details in gratuity calculation is how a partial final year gets treated: if you've completed 6 months or more in your final year of service, it rounds up to a full additional year for gratuity calculation purposes. Complete less than 6 months in that final year, and it's dropped entirely, not counted at all.
This means an employee who resigns at 9 years and 7 months of service gets gratuity calculated as if they'd completed 10 full years — a meaningfully larger payout than someone who resigns at 9 years and 5 months, who gets gratuity calculated on exactly 9 years, with the additional 5 months not contributing anything. If you're close to that 6-month mark in your final year and have some flexibility on your exact leaving date, this rounding rule is worth being aware of before finalising a resignation date.
A worked example
Take a ₹40,000 monthly Basic+DA and 9 years and 7 months of service, covered under the Act. The 7 months round up, giving 10 years of service used in the formula: ₹40,000 × 15/26 × 10 = ₹2,30,769 (approximately). Had the employee left at exactly 9 years and 4 months instead — just 3 months earlier — the partial year would be dropped entirely, and gratuity would be calculated on 9 years: ₹40,000 × 15/26 × 9 = ₹2,07,692 (approximately) — roughly ₹23,000 less, for a difference of only a few months in actual tenure.
The tax-exemption ceiling, and what happens above it
Gratuity received is tax-exempt up to ₹20,00,000 under current rules, for employees covered by the Act. Any amount received above this ceiling is taxable as regular income in the year received. For most salaried employees, the calculated gratuity amount falls well within this ceiling, but higher earners with long tenure and a high final Basic+DA should check whether their calculated gratuity approaches or exceeds this threshold, since the tax treatment changes materially above it.
The calculator's “Not Covered” toggle exists for employees at establishments not covered under the Act, where gratuity is instead governed by company policy rather than the statutory formula — often using a simplified 15/30 divisor, though actual practice varies by employer and isn't standardised the way the Act's formula is.
Common mistakes when estimating gratuity
Using current Basic+DA instead of last drawn Basic+DA. The formula uses your final salary at the time of leaving, not an average across your tenure or your starting salary — a career with significant salary growth will show a noticeably different result depending on which figure is used.
Ignoring the 5-year eligibility threshold. Below 5 years of continuous service (except in cases of death or disability), gratuity typically isn't payable at all under the Act, regardless of how the formula might project.
Not accounting for the 6-month rounding rule. Both underestimating a slightly-under-6-months final year and overestimating a slightly-over-6-months final year are common errors when someone tries to calculate this manually.