# Gratuity Calculator

> Gratuity under the Code on Social Security, 2020 (which replaced the Payment of Gratuity Act from 21 November 2025) is 15 days' wages for every completed year of service, calculated as last drawn wages × 15 × years ÷ 26. Employees qualify after five years of continuous service and fixed-term employees after one year; the service condition doesn't apply on death or disablement. Up to ₹20 lakh is tax-free for private-sector employees.

Interactive calculator: https://www.industax.com/calculators/gratuity

- **Formula:** 15 × wages × years ÷ 26
- **Tax-free limit (private):** ₹20 lakh
- **Fixed-term employees:** Eligible after 1 year

## Formula and rounding

| Item | Rule |
| --- | --- |
| Wages | Last drawn basic + DA (under the Labour Codes, at least 50% of total remuneration) |
| Formula (covered employers) | Wages × 15 × years of service ÷ 26 |
| Years of service | A part year of more than 6 months counts as a full year |
| Eligibility | 5 years' continuous service; 1 year for fixed-term employees; none on death or disablement |
| Not covered by the law | 15/30 × average salary of the last 10 months × years |

## Tax on gratuity

- Government employees: fully exempt
- Private employees covered by the law: least of actual gratuity, the statutory formula amount and ₹20 lakh
- The ₹20 lakh limit is a lifetime limit across employers
- Any excess is taxable as salary; relief under Section 89 may apply

## Worked example: 7 years 8 months of service

1. Last drawn basic + DA: ₹60,000 a month.
2. Service of 7 years 8 months is rounded up to 8 years.
3. Gratuity = ₹60,000 × 15 × 8 ÷ 26 = ₹2,76,923.

**Result:** Gratuity ≈ ₹2.77 lakh, fully tax-free (below ₹20 lakh).

## FAQs

### Am I eligible for gratuity after 4 years and 8 months?

For permanent employees, continuous service of 4 years 240 days (or 190 days in some establishments) has been treated by courts as completing five years. Fixed-term employees under the Labour Codes are eligible after one year.

### Did the Labour Codes increase gratuity?

For many employees, yes. 'Wages' must be at least 50% of total remuneration, so where basic salary was set low, the excess allowance is added back for gratuity, which raises the amount.

### Is gratuity part of CTC?

Many employers include the gratuity provision (about 4.81% of basic) in CTC, but it is paid only when you leave after becoming eligible.

## Official sources

- Ministry of Labour — Labour Codes: https://labour.gov.in/
- incometaxindia.gov.in: https://www.incometaxindia.gov.in/

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Canonical page: https://www.industax.com/calculators/gratuity
Publisher: Indus Tax — CA-led tax and compliance firm (https://www.industax.com). Contact: info@industax.com, 9059139258.
This is general information, not advice for your specific facts.