How gratuity is calculated
Gratuity is a thank-you payment from your employer when you leave after long service. Under the Payment of Gratuity Act — now part of the Code on Social Security, 2020 — it's 15 days' wages for every year of service, where a month is taken as 26 working days:
Gratuity = last monthly (basic + DA) × 15 × years of service ÷ 26
| Basic + DA | Years | Gratuity |
|---|---|---|
| ₹30,000 | 5 | ₹86,538 |
| ₹50,000 | 10 | ₹2,88,462 |
| ₹80,000 | 20 | ₹9,23,077 |
| ₹1,50,000 | 25 | ₹20,00,000 (capped; formula gives ₹21,63,462) |
Rules to know
- Eligibility: 5 years of continuous service; 1 year for fixed-term employees (pro rata); none on death or disablement.
- Rounding: for covered employers, a final part-year of more than 6 months counts as a full year — 8 years 7 months counts as 9.
- 50% wages rule: since 21 November 2025, if basic + DA is less than half of your total pay, the shortfall is added back for gratuity.
- Ceiling and tax: the Act caps gratuity at ₹20 lakh, and up to ₹20 lakh is tax-free for private-sector employees (fully tax-free for government employees).
- Not covered: if your employer has fewer than 10 employees, it may still pay gratuity by policy — commonly half a month's average salary per completed year.
The result is an approximate figure for planning; your employer's final settlement decides the actual amount. See how it fits your pay with the salary calculator and check the tax on the taxable part with the income tax calculator.
Frequently asked questions
What is the formula for gratuity?
For employers covered by the Act: last monthly basic + DA × 15 × years of service ÷ 26. For example, ₹50,000 × 15 × 10 ÷ 26 = ₹2,88,462. If the employer isn't covered, the divisor is 30 and only completed years count.
After how many years do I get gratuity?
Five years of continuous service for permanent employees. Under the Code on Social Security (in force since 21 November 2025), fixed-term employees qualify after one year, pro rata. There's no minimum on death or disablement.
Is 4 years and 8 months counted as 5 years?
For covered employers, a part-year of more than 6 months is rounded up in the formula, and several courts have treated 4 years plus 240 working days as five years for eligibility. Employers' practices vary, so confirm with HR.
Is gratuity taxable?
Government employees' gratuity is fully tax-free. For others, up to ₹20 lakh in a lifetime is exempt; anything above is taxed as salary.
What changed with the new labour codes?
Wages for gratuity must be at least 50% of total pay, so if allowances are over half your pay, the excess is added back to basic + DA — usually increasing gratuity. Fixed-term staff also became eligible after one year.
Last updated: 25 September 2026Suggest an improvement · Report a problem