Gratuity calculator
Gratuity is a lump sum your employer owes you after 5 or more years of continuous service, or one year on a fixed-term contract. Under Chapter V of the Code on Social Security, 2020, which replaced the Payment of Gratuity Act on 21 November 2025, it is (15 / 26) x last drawn wages x completed years, with a part of a year over six months counting as a year, capped at ₹20,00,000.
Wages as the Code on Social Security defines them: basic pay and DA (Dearness Allowance). HRA, conveyance, overtime, commission and other allowances stay out, but only up to half of your total pay; anything above half is added back.
Enter 7.75 for 7 years 9 months. For covered establishments a part of a year over six months counts as a full year; six months or less is dropped.
A fixed-term employee qualifies after 1 year instead of 5, paid pro rata.
Chapter V of the Code on Social Security, 2020 replaced the Payment of Gratuity Act on 21 November 2025. It covers factories, mines, plantations, ports, railways, shops and establishments with 10 or more employees. Most private companies are covered. Once covered, always covered, even if headcount later falls below 10.
Your gratuity amount
₹2,30,769
(15 / 26) x ₹50,000 x 8 counted years
Gratuity by completed years of service
On last drawn wages of ₹50,000 a month
Completed years of service
- Your 8 counted years: ₹2,30,769
- Leaving after fewer years, on the same last drawn wages
- Empty tiles: gratuity needs 5 years of continuous service for this type of employment
Your gratuity against the statutory ceiling
₹2,30,769
Covered vs not covered: what changes
Covered establishments use 15 / 26 of a month per year and count a part of a year over six months as a full year. An employer outside the law owes no statutory gratuity; those who pay it typically use half a month per completed year with no rounding up. On your inputs: covered ₹2,30,769, not covered ₹1,75,000, a difference of ₹55,769.
The formula
How is gratuity calculated?
One formula, three inputs: your last drawn wages, your counted years of service, and whether your employer is covered by the law.
Gratuity = (15 / 26) x last drawn wages x completed years
The law grants 15 days of wages for every completed year of service. A month is counted as 26 working days, not 30, because 4 weekly offs are excluded. That makes each year worth 15 / 26 of a month's wages, roughly 57.7%. Service of more than six months in the final year counts as a full year; six months or less is dropped. Wages means the Code's definition: basic pay and DA (Dearness Allowance), plus whatever part of your allowances exceeds half of total pay.
Worked example: ₹50,000 monthly wages, 7 years 8 months
- 8 months is more than six, so 7 years 8 months counts as 8 years.
- (15 / 26) x ₹50,000 x 8 = ₹2,30,769.
- That is under the ₹20,00,000 ceiling, so the full ₹2,30,769 is payable, tax-free for covered employees.
15 ÷ 26
of a month's wages for each completed year of service
₹50,000
last drawn monthly wages
8
completed years: 7 years 8 months counts as 8
₹2,30,769
gratuity payable in this example
Eligibility
Who gets gratuity, and when?
The 5-year rule has three exceptions, and the ceiling is a lifetime figure, not a per-employer one.
The 5-year rule and its exceptions
You must complete 5 years of continuous service with the same employer before gratuity becomes payable on resignation, retirement or termination. The condition is waived entirely on death or disablement due to accident or disease: gratuity is then paid for the service completed, to the employee or the nominee. It also does not apply when a fixed-term contract ends: a fixed-term employee qualifies after 1 year, paid pro rata.
The ₹20,00,000 ceiling
Statutory gratuity is capped at ₹20,00,000. The same figure is also the lifetime tax-free limit for covered employees (section 19 of the Income-tax Act, 2025; earlier section 10(10)). An employer can pay more voluntarily, but the excess over the ceiling is taxable as salary in your hands.
Covered vs non-covered
What changes if my employer is not covered by the law?
The gratuity chapter covers establishments with 10 or more employees. Outside it, gratuity is contractual, and the arithmetic is less generous.
| Aspect | Covered | Not covered |
|---|---|---|
| Who | Establishments with 10 or more employees; once covered, always covered | Smaller establishments; payment depends on policy or contract |
| Formula | (15 / 26) x wages x years | Half a month's average salary x years |
| Rounding | More than six months counts as a full year | Only completed years count, no rounding up |
| Ceiling | ₹20,00,000 statutory cap | As per policy; tax exemption still limited |
| Tax treatment | Exempt up to ₹20,00,000 (section 19, earlier 10(10)) | Exempt up to the least of the statutory limits; the rest is taxable |
For employers: gratuity is a real liability that accrues at roughly 4.81% of wages every year. Our statutory compliance service provisions it correctly, alongside PF (Provident Fund), ESI (Employees' State Insurance) and TDS (Tax Deducted at Source).
Frequently asked questions
Who is eligible for gratuity?
Any employee who completes 5 years of continuous service with the same employer is eligible on resignation, retirement or termination. A fixed-term employee qualifies after one year, paid pro rata. The five-year condition does not apply on death or disablement, when gratuity is paid to the employee or nominee for the service already completed.
Is gratuity calculated on basic salary or gross salary?
On last drawn wages as the Code on Social Security defines them, from 21 November 2025: basic pay and DA (Dearness Allowance). HRA, conveyance, overtime, commission, statutory bonus and other allowances stay out, but only up to half of total pay; any excess is added back, so wages are never less than half of what you are paid. Before the Code the base was basic plus DA, so for many employees the gratuity base has risen.
Why does the formula divide by 26?
The law treats a month as 26 working days, which is 30 days minus 4 weekly offs. So 15 days of wages per year of service becomes 15 / 26 of a month's wages, roughly 57.7% of one month for every year served.
Does 4 years and 7 months count as 5 years?
The law requires 5 years of continuous service. Some High Court rulings under the earlier Act treated 4 years and 240 working days in the fifth year as qualifying, but the position is not uniform across India. Check your employer's policy and take advice before relying on it.
Is gratuity taxable?
For employees of covered establishments, gratuity is exempt from income tax up to ₹20,00,000 across your lifetime. The exemption now sits in section 19 of the Income-tax Act, 2025 (earlier section 10(10)). Government employees are fully exempt. Any amount an employer pays above the limit is taxable as salary.
Keep exploring
- CTC to take-home calculator
See where gratuity provision sits inside your CTC (Cost to Company) and what actually lands in your bank.
- Employee Corner articles
Plain-language guides to gratuity, HRA, payslips and your money at work.
- Statutory compliance by True HR
Gratuity, PF, ESI, PT and TDS handled every month, filed before due dates.
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