Know what you owe at exit. Gratuity calculator.
Calculate the gratuity payable when an employee leaves — permanent or fixed-term — with the Labour Code wage definition, the six-month rounding rule, the ₹20 lakh ceiling and the tax-exempt amount worked out for you.
Your inputs
Indicative only. The ₹20 lakh tax exemption is a lifetime limit across all employers; gratuity already exempted earlier reduces it.
Talk to a compliance lead →How gratuity is calculated
Gratuity is 15 days' wages for each year of service, where a month is taken as 26 working days. The Code on Social Security, 2020 replaced the Payment of Gratuity Act, 1972 on 21 November 2025 but kept the same formula.
Worked examples
Each line applies the formula exactly as the calculator does. Amounts are rounded to the rupee.
| Case | Wages | Service counted | Working | Gratuity |
|---|---|---|---|---|
| Permanent, 7 years 3 months | ₹40,000 | 7 years (3 months is not over six) | 15 ÷ 26 × 40,000 × 7 | ₹1,61,538 |
| Permanent, 7 years 7 months | ₹40,000 | 8 years | 15 ÷ 26 × 40,000 × 8 | ₹1,84,615 |
| Basic ₹20,000 of ₹60,000 total pay, 10 years | ₹30,000 (50% rule) | 10 years | 15 ÷ 26 × 30,000 × 10 | ₹1,73,077 |
| Fixed-term, 2 years 6 months | ₹25,000 | 2.5 years, pro-rata | 15 ÷ 26 × 25,000 × 2.5 | ₹36,058 |
| Permanent, 4 years 5 months, resigns | ₹30,000 | — | Below 5 years | Not yet eligible |
| Death in service after 2 years | ₹30,000 | 2 years | 15 ÷ 26 × 30,000 × 2 | ₹34,615 |
| Senior employee, 20 years | ₹2,00,000 | 20 years | 15 ÷ 26 × 2,00,000 × 20 = ₹23,07,692 | ₹20,00,000 (ceiling) |
| Not covered (employer scheme), 7 years 9 months | ₹30,000 | 7 completed years | 15 ÷ 30 × 30,000 × 7 | ₹1,05,000 |
The 50% example matters most for staffing and payroll teams: a salary built as low basic plus a large special allowance no longer lowers the gratuity bill, because the Code adds the excess back.
What the Labour Codes changed for gratuity
Four points differ from the old Payment of Gratuity Act practice. They apply to exits from 21 November 2025.
| Topic | Before 21 Nov 2025 | Under the Code on Social Security |
|---|---|---|
| Law | Payment of Gratuity Act, 1972 | Code on Social Security, 2020 (Chapter V) |
| Wage base | Basic + DA only, however small | Basic + DA, with allowances above 50% of pay added back |
| Fixed-term employees | Five years' service needed | Pro-rata after one year |
| Formula and ₹20 lakh ceiling | 15/26 × wages × years; ₹20 lakh | Unchanged |
For employers: provision every month
Set aside 15 ÷ 26 ÷ 12 = 4.81% of wages each month for every eligible employee, or fund it through a group gratuity policy. For a contract workforce the contractor provisions it and recovers it in the bill rate.
Pay within 30 days
Gratuity must be paid within 30 days of becoming due. Late payment attracts simple interest at the rate the Government notifies.
When it can be withheld
Gratuity can be forfeited to the extent of damage caused by the employee's wilful act, or wholly for riotous or disorderly conduct or an offence involving moral turpitude, when employment ends for that reason.
Is gratuity taxable?
Government employees are fully exempt. For everyone else the exempt amount is the lowest of three figures; the rest is taxed as salary in the year of receipt. The Income-tax Act 2025 (from 1 April 2026) keeps these rules.
| Employee covered by gratuity law | Employee not covered |
|---|---|
| Actual gratuity received | Actual gratuity received |
| ₹20 lakh (lifetime, across employers) | ₹20 lakh (lifetime, across employers) |
| 15 ÷ 26 × last drawn wages × years (part-year over six months counts) | ½ month's average salary of the last 10 months × completed years (part-years ignored) |
Gratuity questions, answered
When does a fixed-term employee get gratuity?+
Under the Code on Social Security, a fixed-term employee is entitled to pro-rata gratuity after one year of continuous service, instead of five.
Does the new wage definition apply to past service?+
The Ministry of Labour's FAQs apply the revised wage definition to gratuity from 21 November 2025, so exits after that date use it for the whole period of service.
Is gratuity payable after 4 years and 8 months?+
Several court rulings have counted 4 years and 240 working days as five years of continuous service. Confirm with your adviser for a specific case.
Does 6 months of extra service count as a full year?+
Only if it is more than six months. 7 years and 6 months counts as 7 years; 7 years, 6 months and a day counts as 8. Enter 7 or more additional months to see the rounding.
Is gratuity calculated on gross salary?+
No. It is calculated on wages — Basic + DA — but under the Labour Codes the wages cannot be less than half of total pay, so heavily allowance-based salaries now get a higher gratuity.
What is the maximum gratuity?+
₹20 lakh under the law. An employer can pay more voluntarily, but only ₹20 lakh in a lifetime is tax-exempt for non-government employees.
Do contract workers get gratuity?+
Yes. The contractor is the employer and owes gratuity once the worker qualifies. If the contractor fails to pay, the principal employer can be pursued, so ask your staffing partner how gratuity is provisioned.
Is gratuity paid on death before five years?+
Yes. The five-year minimum does not apply on death or disablement; gratuity is paid to the nominee or legal heirs for the service completed.
More payroll and hiring calculators
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Gratuity provisioned, tracked and paid on exit for every deployed worker — including fixed-term staff eligible after one year.
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