Gratuity Calculator
Gratuity is a lump sum your employer pays when you leave a job after enough years of service. It is worked out as 15 days of your last drawn wages for every completed year. In practice, that is 15 ÷ 26 × your monthly wages × your years of service. For example, wages of ₹90,000 a month and 22 years of service give ₹11,42,308. Enter your own figures below to see yours and the part that is tax-free.
- Gratuity = 15 ÷ 26 × ₹60,000 × 8 years = ₹2,76,923
- The 15 ÷ 26 formula assumes 26 working days in a month.
Read the guide: Gratuity Calculation Formula: The 15/26 Rule Explained With Examples
How to use the gratuity calculator
- Enter your last drawn monthly wages. This is usually your basic salary plus dearness allowance, not your CTC.
- Enter your completed years of service, and any extra months. A part year counts as a full year only if the extra months are more than 6.
- Choose your type of employment. A permanent employee normally needs 5 years of continuous service, a fixed-term employee needs 1 year under the new labour codes, and there is no minimum if the employee dies or becomes disabled.
- Read your gratuity, and how much of it is tax-free (up to ₹20 lakh) and how much is taxable.
Formula
Gratuity = (15 ÷ 26) × last drawn monthly wages × years of service
15 is the number of days’ wages you get for each year. 26 is the number of working days used for a month, so one day’s wage is monthly wages ÷ 26. Years of service means completed years, and a part year counts as a full year only if it is more than 6 months.
Tax-free part = the lowest of your actual gratuity, the 15/26 formula amount and ₹20 lakh, for employees covered by the gratuity law. Anything above that is taxable as salary.
Worked examples
₹90,000 wages and 22 years
15 ÷ 26 × ₹90,000 × 22 = ₹11,42,308. All of it is under ₹20 lakh, so all of it is tax-free.
The six-month rule
With wages of ₹40,000 and 10 years and 6 months of service, only 10 years are counted, and gratuity is ₹2,30,769. With 10 years and 7 months, 11 years are counted, and gratuity is ₹2,53,846. One extra month changes the answer by ₹23,077.
A very high wage
Wages of ₹3,00,000 a month for 40 years give a formula amount of ₹69,23,077. The tax-free part is capped at ₹20,00,000, so ₹49,23,077 is taxable.
Common mistakes to avoid
- Using your CTC. The formula uses wages (usually basic plus DA), which are lower than CTC for most people.
- Counting a part year of 6 months or less as a full year. Only more than 6 months rounds up.
- Assuming 5 years is always needed. There is no minimum on death or disablement, and fixed-term employees qualify after 1 year under the labour codes.
- Forgetting the tax limit. The tax-free part is capped at ₹20 lakh for covered employees, so a very large gratuity can be partly taxable.
- Treating the formula as a ceiling. Some employers pay more than the minimum the law requires, so check your appointment letter.
Frequently asked questions
What is the gratuity formula?
Gratuity = 15 ÷ 26 × last drawn monthly wages × completed years of service. A part year counts as a full year only if it is more than 6 months.
Who is eligible for gratuity?
A permanent employee who has completed 5 years of continuous service with the employer is eligible. The 5-year condition does not apply if the employee dies or becomes disabled.
Did the new labour codes change gratuity?
Yes. The four labour codes took effect on 21 November 2025, and gratuity now falls under the Code on Social Security, 2020. The formula is the same, but fixed-term employees become eligible after 1 year of service, and the definition of wages is wider. Ask your HR team how your employer applies it.
Is gratuity taxable?
For employees covered by the gratuity law, gratuity is tax-free up to the lowest of the actual amount, the formula amount and ₹20 lakh. Government employees are treated differently, and sources vary on their limit, so check the Income Tax Department’s current rules. From tax year 2026-27 the Income-tax Act, 2025 renumbers these provisions; the limits quoted here are unchanged, and your return utility shows the section references to use.
Which salary is used: CTC, gross or basic?
The formula uses wages, which is generally basic salary plus dearness allowance. Under the new labour codes the definition of wages is broader, so your employer’s payroll team can tell you the exact base used for your gratuity.
Can I get gratuity if I resign?
Yes, once you have completed the minimum service, gratuity is payable on resignation, retirement or termination. The condition is the length of service, not the reason for leaving.
Sources: Ministry of Labour & Employment — FAQs on the Labour Codes · Income Tax e-filing portal (gratuity exemption)