Gratuity calculator

How gratuity is calculated

Section 53 of the Code on Social Security, 2020 sets the rule: for every completed year of service, or part of a year over six months, the employer pays 15 days' wages at the rate last drawn. For a monthly-paid employee, 15 days' wages means the monthly wage ÷ 26 x 15:

Gratuity = last monthly wages ÷ 26 x 15 x years of service (no more than ₹20 lakh)

The 26 is the number of working days in a month the law assumes, which is why gratuity works out at a little over half a month's pay (57.7%) for each year. Seasonal establishments pay 7 days' wages for each season, and piece-rated workers' daily wage is the average of their last three months' pay, without overtime.

What counts as wages, and the new 50% rule

Wages for gratuity are basic pay, dearness allowance and any retaining allowance (section 2(88)). HRA, conveyance, bonus, overtime, commission and the employer's PF contribution are left out, but with a catch the labour codes added: if those excluded items come to more than half of your total pay, the part above half is added back to your wages. So if your basic pay and DA are ₹30,000 out of ₹1,00,000 a month, ₹70,000 is excluded, ₹20,000 more than half, and your wages for gratuity become ₹50,000. Many salaries were built with a low basic pay, so this rule can raise gratuity noticeably.

Who gets gratuity

• Five years of continuous service, then gratuity is paid when you retire, resign or your employment ends.
• No minimum service when employment ends through death (paid to your nominee or heirs) or disablement.
• Fixed-term employees after one year, paid pro rata: the Social Security (Central) Rules, 2026 say a fixed-term employee is eligible after "at least one year", with a later part year over six months rounded up (rule 33).
• Working journalists after three years.

Employers covered: every factory, mine, oilfield, plantation, port and railway company, and every shop or establishment with ten or more employees on any day in the last twelve months (First Schedule of the Code). Central and state government employees with their own gratuity rules are outside it. Gratuity can be forfeited, wholly or partly, if you are dismissed for violence, riotous conduct or an offence involving moral turpitude, or to the extent of damage you caused to the employer's property.

The ₹20 lakh ceiling

Gratuity under the law can't exceed ₹20,00,000. The limit was set on 29 March 2018 (S.O. 1420(E)) and carries over into the Code, which lets the government notify a new amount. Your employer can pay more under your contract, but the legal entitlement stops there.

Tax on gratuity

From the 2026-27 tax year, the Income-tax Act, 2025 deducts gratuity from taxable salary (section 19, table): government employees' death-cum-retirement gratuity in full; for employees covered by the gratuity law, the amount worked out under the legal formula, within the ceiling; and for everyone else, the least of the gratuity received, a limit notified by the government and half a month's average salary (over the last ten months) for each completed year. Anything above those amounts is taxed as salary. This is general information, not tax advice.

How to claim

Apply to your employer in Form IV, ordinarily within 30 days of the gratuity becoming payable; you can apply up to 30 days before a known retirement date. The employer must tell you the amount within 15 days, in Form V, and pay within 30 days of it becoming payable, adding simple interest if it pays late (section 56). If the employer refuses or underpays, you can apply to the competent authority under the rules.

Limits

The calculator applies the statutory minimum to a monthly-paid employee of a covered employer. It doesn't handle piece-rated or seasonal work, breaks in service, or reduced wages after disablement. Some details of the new codes, such as how employers apply the 50% wage rule to older service, may be clarified further by the government.

Questions

How is gratuity calculated?

Gratuity = last drawn monthly wages ÷ 26 x 15 x years of service. Wages are basic pay plus dearness allowance, and a final part year counts as a full year if it is more than six months. Someone on ₹50,000 a month who leaves after 10 years gets ₹50,000 ÷ 26 x 15 x 10 = ₹2,88,462. The total can't go above ₹20 lakh.

Is gratuity paid after 4 years 7 months?

The law asks for five years of continuous service, so for a permanent employee 4 years 7 months is short of it on the face of the Code. Five years isn't needed when employment ends through death or disablement, and fixed-term employees qualify after one year. Rules on what counts as continuous service (section 54) can matter in a dispute, so check with your employer or the competent authority.

What changed with the new labour codes?

The Code on Social Security, 2020 replaced the Payment of Gratuity Act, 1972 on 21 November 2025. The formula and the five-year rule are the same, but fixed-term employees now get gratuity after one year, and "wages" has a new definition: if allowances and other excluded pay add up to more than half of your total pay, the excess counts as wages, which can raise your gratuity.

Is gratuity taxable?

For employees covered by the gratuity law, gratuity worked out under the legal formula (within the ₹20 lakh ceiling) is deducted from taxable salary under the Income-tax Act, 2025 (section 19, table entry 5). Other employees get the least of the actual gratuity, a limit notified by the government and half a month's average salary for each completed year (entry 6). Government employees' retirement gratuity is fully exempt.

Sources

• The Code on Social Security, 2020 (36 of 2020): sections 2(34), 2(88), 53 to 56 and 164, First Schedule.
• S.O. 5319(E), 21 November 2025: the Code's provisions in force from 21 November 2025, including the repeal of the Payment of Gratuity Act, 1972.
• Social Security (Central) Rules, 2026 (G.S.R. 344(E)): rule 33, applications, fixed-term eligibility and payment.
• S.O. 1420(E), 29 March 2018: the ₹20 lakh ceiling.
• Income-tax Act, 2025 (30 of 2025): section 19(1), table entries 3 to 6, in force from 1 April 2026.
• PIB factsheet, Code on Social Security, 2020, 22 November 2025: gratuity for fixed-term employees after one year.