Gratuity formula
Employers covered by the law (generally those with 10 or more employees):
“Wages” means basic pay plus dearness allowance. 15 days is half a month, and 26 is the number of working days in a month. A part-year of more than six months counts as a full year.
Employers not covered: many still pay gratuity, usually as half a month's average salary for each completed year, so ÷ 30 and no rounding up.
Worked example
Basic + DA of ₹50,000 a month, 10 years and 7 months of service at a covered employer. 7 months is more than six, so 11 years count:
With exactly 10 years and 6 months, only 10 years count: ₹2,88,462.
What changed with the Labour Codes
The Code on Social Security, 2020 replaced the Payment of Gratuity Act from 21 November 2025. The formula is the same, but:
| Rule | Before | Now |
|---|---|---|
| Fixed-term employees | Five years, like everyone else | Pro rata after one year of service |
| What counts as wages | Basic + DA | Basic + DA, but not less than 50% of total pay: allowances above half are added back |
| Permanent employees | Five years of continuous service | Unchanged: five years (none needed on death or disablement) |
| Formula | 15/26 × wages × years | Unchanged |
The wage rule matters if your basic pay is a small part of your package. Enter your total monthly pay and the calculator applies it. The rules apply from the date the Codes took effect; how employers treat service before that date can vary, so check with HR.
Is gratuity taxable?
- Government employees: fully tax-free.
- Other employees: tax-free up to ₹20 lakh over your whole career; anything above is taxed as salary.
- Gratuity received while still in service, or from an employer that pays more than the formula, may be taxed differently; ask a tax adviser.
To see how gratuity fits with your other income, use the income tax calculator.
Frequently asked questions
How is gratuity calculated?
Am I eligible for gratuity after 4 years?
What is the new gratuity rule under the Labour Codes?
How much gratuity is tax-free?
Is gratuity paid if I resign?
Last updated . How we check our tools. Sources: Code on Social Security, 2020 (in force 21 Nov 2025); Payment of Gratuity Act, 1972; ₹20 lakh tax-free limit for non-government employees. Check your employer's policy for details.