Gratuity Calculator India (New Labour Code)

What changed on 21 November 2025

The Government brought the four labour codes into force on 21 November 2025. Gratuity now sits in Chapter V of the Code on Social Security, 2020, which replaced the Payment of Gratuity Act, 1972. The 15/26 formula carried over unchanged. Three things that affect your number did change:

Fixed-term employees qualify after one year. Under the old Act everyone needed five years. A fixed-term employee now gets gratuity on a pro rata basis once they complete one year of continuous service.
A wider definition of wages. Wages are basic pay, dearness allowance and retaining allowance. If the excluded parts of pay (HRA, conveyance, special allowance and similar) add up to more than 50 percent of total remuneration, the excess is added back. Many CTC structures with a low basic now get a higher gratuity base.
The ceiling is a notified amount. The maximum gratuity is whatever the Central Government notifies. The Ministry of Labour's FAQs confirm it stays at ₹20 lakh.

Not sure how the 50 percent rule changes your pay structure? The new wage code salary calculator shows the effect on basic, PF and take-home pay.

How gratuity is calculated

The formula

Covered employers (permanent and fixed-term staff):

15 × monthly wages × years ÷ 26

Employer not covered by the Code (tax-exemption formula only):

½ × average monthly salary of last 10 months × completed years

15 is 15 days of wages for each year. 26 is the number of working days in a month (Sundays excluded). For covered employers a final part-year of more than six months counts as a full year.

Eligibility at a glance

Permanent employees: five years of continuous service. Some High Courts have counted four years plus 240 days in the fifth year as five years; this is case law, not a rule in the Code.
Fixed-term employees: one year of continuous service, paid pro rata at the end of the contract.
Death or disablement: no minimum service; gratuity goes to the employee or nominee.
Who must pay: establishments with 10 or more employees on any day in the preceding 12 months.
Maximum payable: ₹20 lakh. An employer may pay more under its own policy.

Worked example (the sample values above)

Riya is a permanent employee. Her basic + DA is ₹40,000 a month and her total monthly pay is ₹1,00,000. She resigns after 8 years 7 months.

Step	Working	Result
1. Excluded pay	₹1,00,000 − ₹40,000	₹60,000 (60% of pay)
2. 50% rule top-up	₹60,000 − 50% of ₹1,00,000	₹10,000 added back
3. Gratuity wages	₹40,000 + ₹10,000	₹50,000
4. Countable years	8 years 7 months (7 months is more than 6)	9 years
5. Gratuity	15 × ₹50,000 × 9 ÷ 26	₹2,59,615
6. Tax	Below the ₹20 lakh lifetime exemption	Fully exempt

On the old basic-only base, the same service would give 15 × ₹40,000 × 9 ÷ 26 = ₹2,07,692. The 50 percent rule adds about ₹52,000.

Gratuity for fixed-term employees

A fixed-term employee is hired for a set period on the same hours, wages and benefits as a permanent worker doing the same job. The Code on Social Security lets these employees claim gratuity after one year of continuous service instead of five. The amount is pro rata, which in practice means the normal formula applied to the service actually completed.

Example: Arun works on a contract of 1 year 8 months with wages of ₹30,000 a month. Eight months is more than six, so the service counts as 2 years. Gratuity = 15 × ₹30,000 × 2 ÷ 26 = ₹34,615. If the contract had ended at 11 months, nothing would be payable because the one-year condition is not met.

Renewing the same person on back-to-back contracts generally counts as continuous service. Gaps and breaks are judged on the facts, so keep contract dates and attendance records.

Is gratuity taxable?

From 1 April 2026 the exemption is in the table under Section 19 of the Income-tax Act, 2025 (earlier Section 10(10) of the Income-tax Act, 1961). The rules carried over:

Government employees: the full amount is exempt.
Other employees: exempt up to the least of the actual gratuity, the formula amount and ₹20 lakh. The rest is added to salary and taxed at your slab rate.
Lifetime limit: the ₹20 lakh is cumulative across employers. Enter any exemption used earlier in the calculator.

Retiring or leaving with other dues? Leave encashment has its own ₹25 lakh limit; see the leave encashment calculator, and pull everything together with the full and final settlement calculator.

When and how gratuity is paid

You apply to the employer in the prescribed form (many employers process it automatically with your exit). The employer must pay within 30 days of the date gratuity becomes payable. If it pays late, it owes simple interest at the rate notified for long-term deposits. Gratuity can be withheld or forfeited only in narrow cases, such as termination for conduct that caused damage to the employer's property, and then only to the extent of that loss.

For HR teams: gratuity is a growing liability on every payroll. Teams that track tenure and exits in one place find these numbers easier to plan. GetHirePlus handles the hiring side, from applicant tracking to AI interviews, so new joiners are on-boarded with clean records from day one.

Frequently asked questions

What is the gratuity formula in India?

Gratuity = 15 × last drawn monthly wages × completed years of service ÷ 26. Wages means basic pay plus dearness allowance and retaining allowance, topped up under the Code on Social Security, 2020 if allowances exceed half of total pay. A final part-year of more than six months counts as a full year.

Who is eligible for gratuity under the new labour codes?

Since 21 November 2025 gratuity is governed by the Code on Social Security, 2020. A permanent employee qualifies after five years of continuous service. A fixed-term employee qualifies after one year. The service condition does not apply on death or disablement.

How does gratuity work for fixed-term employees?

A fixed-term employee who completes at least one year of continuous service gets gratuity on a pro rata basis when the contract ends. The same 15/26 formula is used, so 1 year 8 months on wages of 30,000 rupees gives 15 × 30,000 × 2 ÷ 26 = 34,615 rupees.

Does the 50 percent wage rule increase gratuity?

It can. If allowances excluded from wages (such as HRA and special allowance) exceed 50 percent of total remuneration, the excess is added back to wages. So someone with basic of 40,000 on total pay of 1,00,000 has gratuity wages of 50,000, not 40,000.

Is gratuity taxable in India?

Government employees are fully exempt. For others, the exempt amount is the least of the gratuity received, the formula amount and 20 lakh rupees. From 1 April 2026 the exemption sits in Section 19 of the Income-tax Act, 2025 (earlier Section 10(10) of the 1961 Act). The balance is taxed as salary.

Is the 20 lakh rupee limit per employer or for a lifetime?

The tax exemption of 20 lakh rupees is a lifetime limit across all employers. If you claimed 8 lakh of exemption at a previous job, only 12 lakh remains. Separately, 20 lakh is the maximum gratuity an employer is required to pay under the Code; it may pay more voluntarily.

How are partial years of service counted?

For the amount, a final part-year of more than six months is rounded up to a full year, so 8 years 7 months counts as 9 years and 8 years 5 months counts as 8 years. Eligibility still needs five years of continuous service for permanent staff, or one year for fixed-term staff.

When must the employer pay gratuity?

The employer must pay within 30 days of the date gratuity becomes payable, usually your exit date. If it pays late, it owes simple interest from the due date at the rate the Central Government notifies for long-term deposits.

Sources

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Disclaimer: This calculator gives an estimate for general guidance only and is not legal or tax advice. Your actual gratuity depends on your employment terms, state rules and how your employer applies the Code.