Gratuity formula
For employees covered by the Payment of Gratuity Act: Gratuity = (Last drawn basic + DA) × 15 ÷ 26 × years of service. Fifteen days of wages are paid for every year, and a month is taken as 26 working days. A part-year of more than 6 months in the last year counts as a full year, so 7 years 7 months is 8 years, but 7 years 6 months is 7.
For employees not covered by the Act, the divisor is 30 and only completed years count: average salary of the last 10 months × 15 ÷ 30 × completed years.
Who is eligible?
Gratuity is paid on resignation, retirement, death or disability, after 5 years of continuous service. The 5-year rule does not apply on death or disability. Under the four new labour codes, in force from 21 November 2025, fixed-term employees qualify after 1 year, with gratuity worked out in proportion to their contract.
What are “wages” now?
The new labour codes say that wages for gratuity should be at least 50% of your total pay. If your basic is only 35% of your CTC, your wage for gratuity can be higher than your basic. Companies are still updating their payslips, so ask HR how the rule applies to you. Use Check the 50% wages rule to see the effect.
Is gratuity taxable?
For private-sector employees, the amount you receive is tax-free up to the least of ₹20 lakh, the formula amount, and what your employer actually pays. Anything above is taxed as salary. Government employees’ gratuity is fully exempt. The tax-free limit applies to all gratuity you get in your lifetime, so keep a record if you have changed jobs.
Frequently asked questions
When do I receive gratuity?
On leaving the job, whether by resignation, retirement, termination, death or disability. Your employer must pay within 30 days of it becoming due, or pay interest.
Is the ₹20 lakh limit a cap on what I can receive?
Under the Act, the amount payable is capped at ₹20 lakh. Some employers pay more under their own policy. The extra is allowed, but it is taxable.
Do I get gratuity if I leave before 5 years?
Usually not, unless you are on a fixed-term contract or the leaving is due to death or disability. Some employers pay a smaller amount by choice. Check your offer letter.
Is gratuity part of my CTC?
Yes, most employers include it in CTC as a yearly provision, but you only receive it on exit. It is never part of monthly take-home. The salary calculator shows how it sits inside your CTC.
Why is my payslip’s “gratuity” different from this result?
Companies accrue gratuity on different assumptions, such as 4.81% of basic. This calculator gives the legal amount for your service to date. Your employer’s accrual is a budget and may differ.