Gratuity Calculator India — Code on Social Security 2020 Rules

Gratuity is a statutory lump-sum monetary benefit paid by an employer to an employee for continuous services rendered upon exit, retirement, resignation, or termination. It is governed by social-security legislation under the Payment of Gratuity Act, 1972 and consolidated under the Code on Social Security, 2020.

For establishments covered under statutory rules, gratuity is calculated using the formula: Gratuity = (Last Drawn Basic Salary + Dearness Allowance) × 15 × Completed Years of Service ÷ 26. Here 15 represents days of wages and 26 represents working days in a month.

The standard statutory formula for covered establishments is: Gratuity = (Eligible Monthly Wages × 15 × Service Years) ÷ 26. For establishments not covered under the Act, the formula uses 30 working days as the divisor: Gratuity = (Eligible Monthly Wages × 15 × Service Years) ÷ 30.

Gratuity is calculated strictly on Basic Salary + Dearness Allowance (DA), NOT on total Cost to Company (CTC) or take-home pay. Standard allowances such as HRA, transport allowance, and performance bonuses are excluded, unless non-wage components exceed 50% of total CTC under the Code on Social Security 2020.

For regular permanent employees, 5 continuous years of service with the same employer is mandatory to qualify for gratuity upon resignation or exit. However, 5 years is NOT required for Fixed-Term Employees (FTE), who are eligible after 1 year of service under the Code on Social Security 2020. The 5-year condition is also completely waived in cases of death or permanent disablement.

Yes! Under the Code on Social Security, 2020 (enforced 21 November 2025), Fixed-Term Employees (FTE) engaged on a contract basis qualify for gratuity on a pro-rata basis after completing just 1 year of continuous service.

Assuming a monthly Basic + DA of ₹40,000, your gratuity after 5 years is calculated as: ₹40,000 × 15 × 5 ÷ 26 = ₹1,15,385. If your Basic + DA is ₹50,000, gratuity is ₹50,000 × 15 × 5 ÷ 26 = ₹1,44,231.

With a monthly Basic + DA of ₹50,000 and 10 completed years of service, your gratuity payout will be: ₹50,000 × 15 × 10 ÷ 26 = ₹2,88,462.

For establishments covered under the Gratuity Act, service exceeding 6 months in the final year of employment is rounded up to a full year (+1 year). For example, 4 years and 7 months is counted as 5 years of service. If service in the final year is 6 months or less (e.g. 4 years and 5 months), it is rounded down to 4 years.

Under Section 10(10) of the Income Tax Act, gratuity received by non-government private employees is exempt from income tax up to a maximum statutory ceiling of ₹20,00,000 (₹20 Lakhs) over their lifetime. Government employees receive 100% tax exemption on gratuity.

The wage definition under the 2020 Labour Codes mandates that basic salary plus DA must constitute at least 50% of the employee's total CTC. If non-wage allowances exceed 50% of total CTC, the excess portion is automatically added back to eligible wages for calculating statutory benefits like gratuity and Provident Fund (PF).

Establishments with 10 or more employees are covered under the Gratuity Act and use the 15/26 formula with a 6-month rounding rule. Non-covered establishments (less than 10 employees) use the 15/30 formula and count completed full years only.

Employers often include an annual estimated gratuity contribution (typically 4.81% of Basic + DA) in an employee's total CTC breakup. However, actual gratuity is disbursed only upon exit after satisfying qualifying service criteria.

Contract workers engaged through a licensed contractor or directly are entitled to gratuity once they complete qualifying service under applicable Labour Codes. The contractor or principal employer is responsible for payment.

Gratuity can only be forfeited or withheld if an employee's services are terminated for willful omission, negligence causing financial damage/loss to the employer, or disorderly conduct/violence involving moral turpitude, and only to the extent of actual damage caused.

Under statutory rules, the employer must calculate and pay the gratuity amount within 30 days from the date it becomes payable upon exit. Delayed payments beyond 30 days attract simple interest payable by the employer.