How Gratuity Is Calculated
Gratuity = Last drawn wages × 15 / 26 × Years of service
- Years of service: for covered employers, a final part-year of more than 6 months is usually rounded up to a full year.
- Eligibility: permanent employees generally need 5 years of continuous service; fixed-term employees qualify after 1 year under the labour codes. The minimum does not apply on death or disablement.
- New labour codes (from 21 Nov 2025): “wages” must be at least 50% of total pay. If allowances are more than half, the excess is added back, which can raise gratuity for people with a low basic salary.
- Ceiling: the statutory maximum payable is ₹20 lakh.
- Not covered employers: the formula commonly used is 15 / 30 × average salary × completed years.
Tax on Gratuity
Government employees: fully exempt. Others: the exempt amount is the lowest of the gratuity received, ₹20 lakh (lifetime), and the formula amount using salary (Basic + DA). Anything above is taxed at your slab rate. Because the labour code can raise the payout while the tax formula still uses salary, part of a higher gratuity may become taxable. This calculator does not track exemptions you have used at earlier employers.
Frequently Asked Questions
Is 4 years and 8 months enough for gratuity?
Some courts and employers treat 4 years plus 240 working days as 5 years of continuous service, but practice varies. Check with your employer.
When should gratuity be paid?
Generally within 30 days of it becoming payable, with interest for delays. Rules can vary, so verify with your employer or the labour department.