Understanding the Basics: How to Calculate Gratuity

Calculate Gratuity

One notable benefit that every salaried professional awaits after their retirement in India is their gratuity payout. This benefit acts as a significant financial aid to individuals after retirement. However, not many understand the fundamentals of how to calculate gratuity. In this article, let us delve into these basics and simplify the process of gratuity calculation in India.

To start with, the Payment of Gratuity Act, 1972, governs the process of gratuity payment in India. As per this law, every company employing ten or more individuals needs to provide gratuity to its employees upon termination of employment due to retirement, resignation, or death.

The eligibility criteria for an employee to claim gratuity includes the requirement to have completed five or more years in the same organization, either in a continuous or non-continuous manner. However, there is a certain exemption to this rule where if the employee dies or gets physically unfit due to an accident or disease, the five-year rule won’t apply.

How to calculate Gratuity?

The formula to calculate gratuity is simple:

Gratuity = (Last Drawn Salary * 15/26) * Number of Years of Service

‘Last Drawn Salary’ here considers the Basic Salary and Dearness Allowances (DA).

For instance, if Mr. X’s last drawn salary was Rs. 60,000, and he served for 20 years, his gratuity would be:

Gratuity = (60,000 * 15/26) * 20 = Rs. 6,92,308 approx.

Keep in mind, however, that the maximum gratuity one can claim under the Act is Rs. 20 lakh.

From an employee’s standpoint, it’s not only crucial to understand how to calculate gratuity, but they should also be aware of how to check/claim their Provident Fund (PF) online.

The Employee Provident Fund Organisation (EPFO) portal permits employees to check their PF balance online. All you need is your Universal Account Number (UAN) activated on the portal and registered with your mobile number.

Financial planning is a crucial part of a career of any length or age. Knowing where your financial assets lie and how to calculate their value helps you prepare for your monetary future.

However, it’s crucial to understand that the Indian financial market can be unpredictable.

Any financial decision ought to be gauged considering its pros and cons, conducting thorough research and then, it should be taken to achieve financial goals by minimizing the potential risks and maximizing the returns.

It’s always recommended to consult a financial advisor or an expert before making any substantial financial commitment.


Investors must perform a detailed risk assessment before engaging in any transactions within the Indian financial market. Knowledge about how to calculate gratuity and pf online is just a tip of the iceberg. There is a lot to be understood about Indian financial market mechanics and dynamics that need accurate analysis and measurements.


Understanding how to calculate gratuity is a crucial aspect of retirement planning in India. The Payment of Gratuity Act, 1972 mandates companies with ten or more employees to provide gratuity upon termination of employment due to retirement, resignation, or death after five years of service. The calculation formula involves the last drawn salary and the number of years of service. At the same time, employees can check their Provident Fund (PF) balance online using the Employee Provident Fund Organisation (EPFO) portal. However, it’s essential to remember that the Indian financial market can sometimes be unpredictable, and thorough analysis is required before making any significant financial decisions.

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