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Gratuity calculator: how it works
Gratuity = 15 × last monthly wages × years of service ÷ 26. Wages are basic pay plus dearness allowance. For ₹50,000 a month and 10 years: 15 × 50,000 × 10 ÷ 26 = ₹2,88,461.54.
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The gratuity formula, with worked examples
Gratuity = 15 × last monthly wages × years of service ÷ 26, where wages are basic pay plus dearness allowance (and retaining allowance, if paid). A part year of more than six months counts as a full year.
Example: Asha leaves after 7 years 8 months on ₹62,000 basic + DA. The 8 months round up, so 8 years count. Gratuity = 15 × 62,000 × 8 ÷ 26 = ₹2,86,153.85. The calculator rounds to the paisa; many employers pay the nearest rupee.
| Monthly basic + DA | Years | Gratuity (÷ 26) | Not covered (÷ 30) |
|---|---|---|---|
| ₹25,000 | 5 | ₹72,115.38 | ₹62,500.00 |
| ₹50,000 | 10 | ₹2,88,461.54 | ₹2,50,000.00 |
| ₹75,000 | 15 | ₹6,49,038.46 | ₹5,62,500.00 |
| ₹1,00,000 | 20 | ₹11,53,846.15 | ₹10,00,000.00 |
| ₹1,50,000 | 25 | ₹20,00,000.00 (limit; formula gives ₹21,63,461.54) | ₹18,75,000.00 |
How to use the gratuity calculator
- Enter your last monthly basic pay plus DA. Add your total monthly pay to apply the 50% wage floor.
- Enter your years and extra months of service.
- Choose permanent or fixed-term, and why you are leaving.
- Read the gratuity, whether you are eligible, and how much is tax-free.
What changed on 21 November 2025
The four Labour Codes came into force on 21 November 2025, and gratuity moved from the Payment of Gratuity Act 1972 to the Code on Social Security 2020. Three changes matter for the calculation.
- Fixed-term employees qualify after one year of continuous service instead of five. The Code says their gratuity is pro rata; it does not spell out the arithmetic, so this calculator applies the same 15 ÷ 26 for each year and the same six-month rounding.
- Wages must be at least 50% of total remuneration. If allowances outside wages (such as HRA, conveyance and bonus) are more than half of pay, the excess is added back. Someone on ₹1,00,000 a month with ₹30,000 basic + DA has gratuity worked out on ₹50,000: ₹2,88,461.54 after 10 years instead of ₹1,73,076.92.
- The 50% floor is a minimum. Some allowances, such as a special allowance, may count as wages in full; if yours do, include them in the basic + DA field.
The ₹20 lakh limit and tax
The most an employer must pay under the gratuity law is ₹20,00,000, and the same amount is the lifetime limit for tax-free gratuity for private-sector employees. An employer can pay more by choice; the excess is taxed as salary. Gratuity paid after death is not income of the nominee or heirs.
These figures are a guide. Your employer’s gratuity rules, the trust deed or a settlement can be more generous than the law, and a lawyer or your HR team can confirm what applies to you.
Questions people ask
How is gratuity calculated?
Gratuity = 15 × last monthly wages × years of service ÷ 26. Wages are basic pay plus dearness allowance. For ₹50,000 a month and 10 years: 15 × 50,000 × 10 ÷ 26 = ₹2,88,461.54.
What changed under the new Labour Codes?
Since 21 November 2025, gratuity is paid under the Code on Social Security 2020. The 15 ÷ 26 formula and the five-year rule for permanent employees stay. Fixed-term employees now qualify after one year, and wages for gratuity must be at least half of total pay, which raises gratuity where basic and DA were a small part of the salary.
How many years of service do I need?
Five years of continuous service for a permanent employee, and one year for a fixed-term employee. There is no minimum when employment ends because of death or disablement; the gratuity then goes to the nominee or heirs.
How is a part year counted?
A part year of more than six months counts as a full year, and six months or less is dropped. 9 years 7 months counts as 10 years; 10 years 6 months also counts as 10 years.
Is gratuity taxable?
Gratuity received by a private-sector employee is tax-free up to ₹20,00,000 over their working life, under both the old and new tax regimes. Anything above that is taxed as salary. Government employees’ gratuity is fully tax-free.
Why divide by 26, and when is it 30?
The law treats a month as 26 working days, so 15 days’ wages is 15 ÷ 26 of a month’s pay. For an employer outside the gratuity law, the income-tax rule exempts half a month’s average salary for each completed year, which is 15 ÷ 30, and part years are ignored.