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For individualsRates reviewed September 2026

Gratuity Calculator under the Payment of Gratuity Act

A gratuity calculator applies the statutory formula that converts your last drawn wages and your completed years of service into a lump sum payable on exit. The entitlement came from the Payment of Gratuity Act, 1972 and now sits in Chapter V of the Code on Social Security, 2020, which was brought into force on 21 November 2025 along with the other three Labour Codes.

The Labour Codes changed two things that matter for the number. First, a fixed-term employee now earns gratuity on a pro rata basis after one year of service instead of five. Second, the statutory definition of wages caps excluded allowances at 50% of total remuneration, so where allowances exceed that share the excess is added back into wages, raising the base on which gratuity is computed.

Gratuity received is taxable salary to the extent it exceeds the exemption ceiling, which is ₹20,00,000 across your working life for employees other than government employees. Government employees receive their gratuity fully exempt.

Gratuity Calculator

For a non-covered employee, use the average wages of the last ten months.

₹
years

A trailing part year counts as a full year only if it exceeds six months.

months
Employer covered by the Payment of Gratuity Act

Establishments with ten or more employees are covered and use the 15/26 formula.

Fixed-term contract employee

Fixed-term employees qualify after one year and are paid pro rata under the Code on Social Security, 2020.

Gratuity payable

₹4,50,000

15/26 on 13 years of service

Service enteredRounded under the six month rule
12 years 7 months
Completed years after rounding
13 years
Formula appliedCovered establishment
Wages x 15 / 26 x completed years
Fifteen days of wages₹60,000 x 15 / 26
₹34,615
Qualifying service condition5 years of continuous service
Met
Gratuity payable
₹4,50,000
Statutory ceilingIncome-tax exemption ceiling, cumulative across every employer over a working life
₹20,00,000
Tax-exempt portion
₹4,50,000
Taxable balance
₹0
  • Under the Code on Social Security definition of wages, allowances above 50% of total remuneration are added back into wages, which raises the base this formula runs on.
  • The published page states ₹20,00,000 as the income-tax exemption ceiling and does not state a separate statutory cap on the amount payable, so no cap is applied to the gratuity itself here.

The formula

Gratuity (covered establishment) = Last drawn monthly wages x 15 / 26 x completed years of service

Last drawn wages
Wages for the month immediately preceding exit, read with the Code on Social Security definition of wages, which brings back allowances in excess of 50% of total remuneration.
15 / 26
Fifteen days of wages for each completed year, taking 26 working days in a month for an establishment covered by the Act.
Completed years
Full years of service, with any part of a year exceeding six months counted as a whole year.
Non-covered employees
For employees outside a covered establishment the divisor is 30 rather than 26, and wages are the average of the last ten months.

Gratuity is payable on retirement, resignation, death or disablement, and the five-year minimum service condition does not apply where service ends because of death or disablement.

How to calculate it

  1. 1

    Check whether the establishment is covered

    Establishments with ten or more employees are covered, and the 15/26 formula applies. Outside coverage, gratuity may still be payable under contract, computed at 15/30 of the average wages of the last ten months.

  2. 2

    Confirm the qualifying service

    Five years of continuous service is the general condition. A fixed-term employee qualifies after one year and is paid pro rata. The condition does not apply where employment ends on death or disablement.

  3. 3

    Round the years of service

    Count completed years, then round a trailing part year up only if it exceeds six months. So 12 years 7 months counts as 13, while 12 years 5 months counts as 12.

  4. 4

    Fix the last drawn wages

    Take basic wages and dearness allowance for the final month. Test the split against the Code on Social Security definition, because allowances above 50% of total remuneration are added back and increase the gratuity base.

  5. 5

    Apply the formula and the ceiling

    Multiply wages by 15, divide by 26, and multiply by the rounded years. Compare the result against the ₹20,00,000 income-tax exemption ceiling, which applies cumulatively across all employers over your career.

Gratuity entitlement and exemption, FY 2026-27

Gratuity entitlement and exemption, FY 2026-27
ItemPosition
Covered establishment formulaLast drawn wages x 15 / 26 x completed years
Non-covered employee formulaAverage wages of the last ten months x 15 / 30 x completed years
Minimum service, regular employee5 years of continuous service
Minimum service, fixed-term employee1 year, paid pro rata under the Code on Social Security, 2020
Death or disablementNo minimum service condition
Income-tax exemption ceiling₹20,00,000 over a lifetime for employees other than government employees

Worked example

Last drawn basic plus DA
₹60,000 a month
Length of service
12 years 7 months
Establishment
Covered, more than ten employees
Earlier gratuity received
Nil
  • The trailing 7 months exceed six months, so completed years round to 13
  • Fifteen days of wages = ₹60,000 x 15 / 26 = ₹34,615
  • Gratuity = ₹34,615 x 13 years = ₹4,50,000
  • Cumulative exemption ceiling of ₹20,00,000 is not breached

Gratuity payable = ₹4,50,000, fully exempt from income tax.

Frequently asked questions

For an establishment covered by the statute, gratuity is last drawn monthly wages multiplied by 15, divided by 26, multiplied by the completed years of service. The 26 represents working days in a month. Employees outside a covered establishment use a divisor of 30 and take the average wages of the last ten months.
Possibly. The Madras High Court held in Mettur Beardsell that 240 days of service in the fifth year amounts to a completed year of continuous service, which satisfies the five-year condition. The Supreme Court has not settled the point, so this is persuasive rather than binding and some employers decline the claim until directed by the controlling authority.
Two things, both from 21 November 2025. Fixed-term employees now become entitled to gratuity on a pro rata basis after one year of service rather than five. Separately, the statutory definition of wages restricts excluded allowances to 50% of total remuneration, so a salary structure heavy on allowances now yields a higher gratuity base than it did before.
For employees other than government employees, gratuity is exempt up to ₹20,00,000, and that ceiling applies cumulatively across every employer over your working life rather than per employer. Anything above it is taxed as salary at your slab rate. Gratuity received by government employees is fully exempt.
Yes. Gratuity is payable on resignation as much as on retirement, provided the qualifying service condition is met. It is only forfeited, wholly or partly, where services are terminated for wilful damage or loss to the employer, or for riotous conduct or an offence involving moral turpitude committed during employment.
Only a part year exceeding six months is rounded up to a full year. Six months or less is disregarded. So 8 years 7 months is counted as 9 years, while 8 years 6 months is counted as 8. This rounding applies to the trailing period, not to each individual year of service.
On wages, not on CTC. Wages mean basic pay and dearness allowance, and under the Code on Social Security any allowances exceeding 50% of total remuneration are added back into that figure. Employers that historically kept basic pay low to suppress gratuity and provident fund costs have had to restructure since the Codes commenced.

Sources

Rates and rules on this page come from the following. This is a working aid, not professional advice: confirm anything material with your Chartered Accountant before you act on it.

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