Gratuity calculator and the rules behind it

Gratuity is a lump sum your employer pays when you leave after enough years of service. Since 21 November 2025 it is governed by the Code on Social Security, which brought in two changes: it is worked out on Labour Code wages rather than Basic alone, and fixed-term employees now qualify after one year instead of five.

The formula

For each year of service you get 15 days' wages, worked out on your last month's wages. For someone paid monthly, 15 days' wages is the monthly figure times 15/26, because a month is treated as 26 working days.

At ₹50,000 of wages a month, as at 12 LPA with Basic at half of CTC, one year is worth ₹28,846. Five years is ₹1,44,231.

The wages are Labour Code wages: Basic and DA, plus whatever the 50% rule adds back when allowances are more than half of your pay. A calculator that uses Basic alone will understate gratuity whenever Basic is below half of CTC.

When you qualify

• Permanent employees need five years of continuous service.
• Fixed-term employees engaged directly by the employer qualify after one year and are paid pro rata for the time they actually served.
• Contract workers engaged through a contractor still need five years.
• On death or disablement there is no minimum period.

On wages of ₹50,000 a month. For a permanent employee a part year counts as a full year only when it is more than six months: 5 years 6 months pays ₹1,44,231, but 5 years 7 months pays ₹1,73,077. Some courts treated 4 years and 240 days as five years under the old Payment of Gratuity Act; whether that carries over under the Code is not settled, so the calculator counts full years.

What it adds up to

Gratuity on leaving after each length of service, using the calculator's standard structure with Basic at half of CTC, and assuming your salary stays the same throughout. In practice it is worked out on your last wages, so pay rises raise it for every year you have served.

The Code caps gratuity at ₹20,00,000. With this structure, 20 years of service reaches the cap above a CTC of about ₹41.6 lakh.

Gratuity inside your CTC

Most offer letters include a gratuity line in CTC: 15/26 of a month's wages for every year, about 4.8% of wages. It is not paid to you each month. It is what your employer sets aside, and you only receive gratuity when you leave after qualifying, so the calculator leaves it out of in-hand pay.

Tax on gratuity

For most private-sector employees, gratuity is tax-free up to ₹20,00,000 across your whole working life; anything above that is taxed as salary in the year you receive it. Gratuity paid to Central and State Government employees is fully exempt. The exact exempt amount depends on a formula in the Income-tax Act, 2025, so if your gratuity is large, check the figure on your Form 130 (formerly Form 16).

Try it with your full salary

The calculator works out your Labour Code wages from your CTC and shows gratuity alongside PF and ESI. In advanced mode you can set your years of service and whether you are on a fixed-term contract.

Sources: Code on Social Security, 2020, s.53, in force from 21 November 2025; Industrial Relations Code, 2020, s.2(o) on fixed-term employment; Ministry of Labour and Employment FAQs of 30 December 2025 (Q12, the maximum) and Additional FAQs of 16 March 2026 (Q10, Q14 and Q16). Full method.