Gratuity Calculator
Gratuity under the Code on Social Security, 2020, including fixed-term staff.
Inputs
- Last drawn salary
- ₹80,000
- Years of service
- 10
- Formula
- (15 ÷ 26) × salary × years
- Based on last drawn basic + DA. Tax exemption limits apply at payout.
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What each Gratuity input means
- Last drawn salary (monthly)
- Your last monthly basic pay plus dearness allowance. Under the Labour Codes, if allowances exceed half of your total pay, the excess counts as wages too, which can raise this figure.
- Years of service
- Completed years of continuous service with this employer.
- Type of employment
- Permanent employees need five years of continuous service; fixed-term contract employees qualify after one year under the Code on Social Security, 2020.
Gratuity formula
Gratuity = (15 ÷ 26) × last monthly wages × completed years, capped at ₹20 lakh
Gratuity is 15 days' wages for every completed year of service. For someone paid monthly, 15 days is taken as 15/26 of a month's wages, on the convention of 26 working days, and 'wages' means basic pay plus dearness allowance. Since 21 November 2025 the rules sit in the Code on Social Security, 2020, which replaced the Payment of Gratuity Act. A permanent employee qualifies after five years of continuous service, or sooner on death or disablement; under the Code a fixed-term employee qualifies after one year, on the same proportionate formula. The amount is capped at ₹20 lakh, which is also the tax-free limit for private-sector employees.
Gratuity worked example
With ₹80,000 of last-drawn basic plus DA and 10 completed years, gratuity is (15 ÷ 26) × 80,000 × 10 = about ₹4,61,538, paid on leaving on top of your PF.
More Gratuity examples
A fixed-term employee on ₹45,000 who completes a two-year contract is now entitled to gratuity: (15 ÷ 26) × 45,000 × 2 = ₹51,923. Before the Code took effect in November 2025, the same contract earned nothing.
After 25 years on ₹1,50,000 the formula gives ₹21,63,462, above the cap, so the gratuity payable is ₹20,00,000.
Five completed years is the threshold for a permanent employee: on ₹30,000 it brings (15 ÷ 26) × 30,000 × 5 = ₹86,538. Leaving after four years instead, the same employee is owed nothing.
Where the Gratuity calculator can give the wrong answer
- A permanent employee with fewer than five years gets nothing under the law, except on death or disablement, though some employers pay earlier under their own policy.
- The payout is capped at ₹20 lakh; when the formula gives more, the capped amount is shown with the uncapped figure beside it.
- Use basic plus DA, not gross pay or CTC. Including HRA or bonus overstates gratuity, unless the Labour Codes' 50% rule adds allowances back into wages.
- Employers not covered by the Code may follow their own scheme; this uses the statutory formula.
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Gratuity reference table
| Years of service | Permanent employee | Fixed-term employee |
|---|---|---|
| 1 | ₹0 | ₹28,846 |
| 3 | ₹0 | ₹86,538 |
| 5 | ₹1,44,231 | ₹1,44,231 |
| 10 | ₹2,88,462 | ₹2,88,462 |
| 15 | ₹4,32,692 | ₹4,32,692 |
| 20 | ₹5,76,923 | ₹5,76,923 |
| 25 | ₹7,21,154 | ₹7,21,154 |
| 30 | ₹8,65,385 | ₹8,65,385 |
Gratuity FAQ
- Government employees' gratuity is fully exempt. For others, up to ₹20 lakh is tax-free; anything above that is taxed as salary in the year you receive it.
- As a permanent employee you aren't entitled to gratuity before five years of continuous service, except on death or disablement. As a fixed-term employee, you qualify after one year under the Code on Social Security, 2020.
- The Code on Social Security, 2020 came into force on 21 November 2025, replacing the Payment of Gratuity Act. The formula and the ₹20 lakh cap stayed the same; the big change is that fixed-term employees now qualify after one year instead of five.
- Within 30 days of becoming payable, usually your last working day, under the Code on Social Security, 2020. Late payment carries interest.
- They can raise it. Under the Codes, if allowances such as HRA and conveyance exceed half of your total pay, the excess is added to wages, and gratuity is worked out on wages. A salary built mostly from allowances now earns more gratuity than before.
- Many employers set aside gratuity as they go and show it in CTC, typically 4.81% of basic pay: 15 days' wages a year divided by 26 working days and 12 months. It isn't paid monthly; you receive it as a lump sum on leaving, provided you have completed the qualifying service. That is why it should be taken out of CTC when estimating in-hand pay.
- Because the law counts a month as 26 working days, so 15 days' wages is 15/26 of a month's pay. That makes gratuity about 58% of a month's wages for each year, slightly more than half.