Gratuity Calculator

How gratuity is calculated

Gratuity is a lump sum your employer pays when you leave after long service. For employees covered by the Payment of Gratuity Act, 1972 (now the Code on Social Security, 2020), it is 15 days' wages for every completed year of service, worked out on your last drawn monthly wages:

Gratuity = Last drawn wages × 15 ÷ 26 × Years of service

• Wages means basic pay plus dearness allowance (DA). HRA, bonus, overtime and most other allowances are left out. Under the Labour Codes, if those allowances make up more than half of your total pay, the extra counts as wages (see below).
• 26 is the number of working days in a month, so 15 ÷ 26 of a month's wages is 15 days' pay. Courts have kept the 26-day month even for offices that work five days a week.
• Years of service are rounded: a final part-year of more than six months counts as a full year. 9 years 7 months counts as 10 years, but 9 years 6 months counts as 9.

Example

Basic + DA of ₹50,000 a month and 9 years 7 months of service:

₹50,000 × 15 ÷ 26 × 10 = ₹2,88,462

* Limited to the ₹20 lakh maximum. The formula gives ₹23,07,692 and ₹34,61,538.

Who is eligible for gratuity?

• Permanent employees: after 5 years of continuous service, when you resign, retire, are laid off or your job otherwise ends.
• Fixed-term employees: under the Code on Social Security (in force from 21 November 2025), a fixed-term employee gets gratuity after 1 year, paid pro rata for the exact period worked. This applies only to staff hired directly by the employer, not to workers supplied by a contractor.
• Death or disablement: the 5-year minimum does not apply. Gratuity is paid to you, or to your nominee or legal heirs.
• 4 years and 240 days: several High Courts have held that working 240 days in the fifth year (190 days for a 5-day week) completes 5 years of continuous service. Employers do not all accept this, so check your company's policy.

The law applies to establishments with 10 or more employees. Once covered, an establishment stays covered even if staff numbers later fall.

The new Labour Code wage rule (50% rule)

From 21 November 2025, the Code on Social Security uses a single definition of wages: basic pay, DA and retaining allowance. Allowances such as HRA, conveyance and special allowance are excluded, but only up to 50% of your total pay. Anything above that is added back to wages.

Wages for gratuity = the higher of (Basic + DA) and 50% of total pay

For example, if your total pay is ₹1,00,000 a month and basic + DA is ₹35,000, allowances are 65% of your pay. The extra 15%, or ₹15,000, is added back, so your gratuity is worked out on ₹50,000. Enter your total monthly pay in the calculator to apply this rule. The Labour Ministry has said the new definition applies from 21 November 2025 onwards. It does not reopen gratuity settled before that date.

Maximum gratuity and income tax

Under the Act, the most an employer has to pay is ₹20 lakh. An employer can choose to pay more, but the extra is fully taxable. The tax exemption depends on your type of employer:

The ₹20 lakh limit applies over your whole career. Any exemption you claimed from earlier employers reduces it. These rules were in Section 10(10) of the Income-tax Act, 1961, and carry over into the Income-tax Act, 2025 (from 1 April 2026). The taxable part is added to your salary income and taxed at your slab rate. You can ask for relief under the arrears-relief provision (Section 89 of the 1961 Act) by filing Form 10E.

Employees not covered by the Gratuity Act

If your employer is not covered, gratuity depends on your employment contract or company policy. For tax purposes it is measured as half a month's average salary for each completed year. The average is taken over the 10 months before the month you leave, and part-years are ignored:

Gratuity = Average basic + DA (last 10 months) × 15 ÷ 30 × Completed years

Central Government employees

Central Government civil servants under the CCS (Pension) Rules, 2021 or the CCS (Payment of Gratuity under NPS) Rules, 2021 follow a different formula. Emoluments means basic pay plus DA. A part-year of three months or more counts as a completed half-year.

Retirement gratuity = ¼ × Emoluments × Completed six-monthly periods

The most you can get is 16½ times emoluments, which takes 33 years of service, and retirement gratuity needs at least 5 years of qualifying service. The overall ceiling went up from ₹20 lakh to ₹25 lakh from 1 January 2024, when DA reached 50%. Death gratuity is paid to the family on this scale:

The ₹25 lakh limit applies to Central Government civil employees. State governments, PSUs, banks, railways, defence services and autonomous bodies have their own rules and limits.

When and how gratuity is paid

• Apply to your employer within 30 days of the date gratuity becomes payable (Form I). Many employers pay without an application.
• The employer must pay within 30 days of the amount becoming payable. If it pays late, it owes simple interest at the rate the government notifies.
• If you were dismissed for causing wilful damage to the employer's property, the employer can recover that loss from your gratuity. If you were dismissed for riotous or violent conduct, or for an offence involving moral turpitude, the employer can withhold your gratuity in part or in full.
• Fill in a nomination (Form F) so your family gets the gratuity without delay.
• Gratuity cannot be attached by a court order to pay off your debts.

Frequently asked questions