Working out gratuity should take ten seconds. Instead, most people get stuck on three questions: which salary counts, how many years count, and whether the new labour codes changed anything.
They did. Since 21 November 2025, gratuity runs under the Code on Social Security, 2020, with a wider definition of wages and a one-year rule for fixed-term staff.
This free gratuity calculator handles all of it. Below it you will find the exact formula, worked examples, a ready reckoner, the tax rules for 2026-27 and a free Excel template for your whole team.
A gratuity calculator is a tool that estimates the lump sum an employer must pay an employee on leaving, using the formula last drawn monthly wages × 15 ÷ 26 × years of service. In India, gratuity is payable after five years of continuous service (one year for fixed-term employees), capped at ₹20 lakh, and is tax-free up to ₹20 lakh for private employees.
Quick answer: gratuity calculator formula for India (October 2026)
- The gratuity formula for covered employers is last drawn monthly wages × 15 ÷ 26 × years of service, where wages mean basic pay + DA + retaining allowance.
- Permanent employees qualify after 5 years of continuous service, fixed-term employees after 1 year, and nobody needs a minimum on death or disablement (Code on Social Security, 2020, in force since 21 November 2025).
- A part-year of more than six months counts as a full year, so 7 years 7 months is counted as 8 years.
- If allowances outside basic, DA and retaining allowance exceed 50% of total pay, the excess is added to wages, which raises gratuity.
- Statutory gratuity is capped at ₹20 lakh, and private employees can receive up to ₹20 lakh tax-free over their lifetime.
Gratuity Calculator for India
This online gratuity calculator follows the Code on Social Security, 2020. Enter dates instead of a rounded year count, and it applies the six-month rounding rule for you. Add your other allowances, and it runs the 50% wage test that most calculators skip.
Try the gratuity calculator
Estimate only. Based on the Code on Social Security, 2020, and the ₹20 lakh limit. Confirm final settlements with your CA or labour consultant.
Gratuity Calculator Formula
Gratuity = last drawn monthly wages × 15 ÷ 26 × years of service. This is the formula for every employer covered by the Code on Social Security, 2020, which means any establishment with 10 or more employees.
| Part of the formula | What it means |
|---|---|
| Last drawn monthly wages | Basic pay + dearness allowance (DA) + retaining allowance, plus any excess allowances under the 50% rule |
| 15 | You earn 15 days' wages for every year of service |
| 26 | One month has 26 working days (4 Sundays off), so monthly wages ÷ 26 = one day's wage |
| Years of service | Completed years, plus one more if the last part-year is over six months |
The Code keeps the familiar 15/26 structure from the old Payment of Gratuity Act, 1972. Kredily's labour code explainer puts it as 15 days' wages per completed year on last drawn wages, under Section 53.
Gratuity formula for employers not covered (fewer than 10 employees)
Small employers with fewer than 10 employees are not bound by the statutory gratuity rules, but the Income-tax formula for them is: average monthly salary of the last 10 months × 15 ÷ 30 × completed years.
Two differences matter. The divisor is 30, not 26. And part-years are dropped, not rounded up.
On ₹30,000 a month for 7 years, that gives ₹1,05,000, against ₹1,21,154 under the 15/26 formula. Any payment here depends on your employment contract.
Gratuity formula for seasonal workers
A seasonal establishment pays seven days' wages for each season, not 15 days per year. The rest of the method stays the same.
Gratuity Calculation Examples
These four cases cover the situations people search for most. Each one can be checked in the free Excel template.
Example 1: Gratuity for a private employee (part-year rounding)
Priya joined a Pune manufacturing unit on 1 June 2018 and resigned on 15 January 2026. Her basic pay is ₹22,000 and her other allowances are ₹28,000.
| Step | What we did | Result |
|---|---|---|
| 1. Total pay | Basic ₹22,000 + other allowances ₹28,000 | ₹50,000 |
| 2. 50% test | Half of total pay is ₹25,000. Allowances of ₹28,000 exceed it by ₹3,000, so ₹3,000 is added back | Wages ₹25,000 |
| 3. Service | 7 years, 7 months, 15 days. The part-year is over six months, so it counts as a full year | 8 years |
| 4. Gratuity | ₹25,000 × 15 ÷ 26 × 8 | ₹1,15,385 |
If basic pay alone were used, the gratuity would be ₹22,000 × 15 ÷ 26 × 8 = ₹1,01,538. The 50% test adds ₹13,847, about 14% more.
Example 2: Fixed-term employee after one year
Sunita is on a fixed-term contract at ₹20,000 a month in wages. Her contract ends after 1 year and 7 months.
| Step | What we did | Result |
|---|---|---|
| 1. Eligibility | Fixed-term staff qualify after one year | Eligible |
| 2. Service | 1 year 7 months rounds up to 2 years | 2 years |
| 3. Gratuity | ₹20,000 × 15 ÷ 26 × 2 | ₹23,077 |
Example 3: Death or disablement before five years
When an employee dies or leaves because of disablement, the five-year minimum does not apply. Gratuity is calculated on the actual service and paid to the employee, or to the nominee or legal heirs. A worker with 3 years of service on ₹18,000 wages gets ₹18,000 × 15 ÷ 26 × 3 = ₹31,154.
Example 4: Long service near the ₹20 lakh cap
Anil retires after 25 years with last drawn wages of ₹1,00,000. Formula: ₹1,00,000 × 15 ÷ 26 × 25 = ₹14,42,308. This is under the ₹20 lakh ceiling, so the full amount is payable. The tax side of this example is worked out in the tax section below.
Gratuity Ready Reckoner Table (15/26 Formula)
Use this table to read your gratuity directly from monthly wages and years of service. Every figure uses wages × 15 ÷ 26 × years, rounded to the nearest rupee.
| Monthly wages (Basic + DA) | 1 year | 5 years | 10 years | 15 years | 20 years | 25 years |
|---|---|---|---|---|---|---|
| ₹15,000 | ₹8,654 | ₹43,269 | ₹86,538 | ₹1,29,808 | ₹1,73,077 | ₹2,16,346 |
| ₹20,000 | ₹11,538 | ₹57,692 | ₹1,15,385 | ₹1,73,077 | ₹2,30,769 | ₹2,88,462 |
| ₹25,000 | ₹14,423 | ₹72,115 | ₹1,44,231 | ₹2,16,346 | ₹2,88,462 | ₹3,60,577 |
| ₹30,000 | ₹17,308 | ₹86,538 | ₹1,73,077 | ₹2,59,615 | ₹3,46,154 | ₹4,32,692 |
| ₹40,000 | ₹23,077 | ₹1,15,385 | ₹2,30,769 | ₹3,46,154 | ₹4,61,538 | ₹5,76,923 |
| ₹50,000 | ₹28,846 | ₹1,44,231 | ₹2,88,462 | ₹4,32,692 | ₹5,76,923 | ₹7,21,154 |
| ₹75,000 | ₹43,269 | ₹2,16,346 | ₹4,32,692 | ₹6,49,038 | ₹8,65,385 | ₹10,81,731 |
| ₹1,00,000 | ₹57,692 | ₹2,88,462 | ₹5,76,923 | ₹8,65,385 | ₹11,53,846 | ₹14,42,308 |
The 1-year column applies only to fixed-term employees, or to cases of death or disablement. A handy shortcut: every ₹10,000 of monthly wages earns ₹5,769 of gratuity per year of service.
Who Is Eligible for Gratuity?
Permanent employees are eligible for gratuity after five years of continuous service, and fixed-term employees after one year. Gratuity becomes payable on retirement, superannuation, resignation, termination, death, disablement or the end of a fixed-term contract.
| Situation | Minimum service |
|---|---|
| Permanent employee: resignation, retirement, termination | 5 years |
| Fixed-term employee (contract ends or is ended) | 1 year |
| Death of the employee | None |
| Disablement due to accident or disease | None |
| Working journalists | 3 years |
The Ministry of Labour's March 2026 FAQ confirms that a fixed-term employee qualifies after one year from the start of the contract, as summarised by Commercial Law Publishers. The list of exceptions to the five-year rule, including working journalists at three years, comes from LexComply's eligibility guide.
Does 4 years and 240 days count as 5 years?
Sometimes, but it is not a settled rule across India.
Continuous service law treats 240 days worked in a year as a full year. The Madras High Court (Mettur Beardsell, 1998) and the Kerala High Court (2015) used this to count 4 years plus 240 days in the fifth year as five years, according to Ethika's gratuity guide. Outside those states the rulings are persuasive, not binding, and no court has yet applied the new Code's continuous service section to this question.
If you are close to five years, check the position with your HR team or a labour consultant before deciding on the exit date.
What Changed Under the New Labour Codes
Four things changed for gratuity on 21 November 2025, when the Code on Social Security, 2020 replaced the Payment of Gratuity Act, 1972. The formula stayed the same. The inputs moved.
| What | Old law (Payment of Gratuity Act, 1972) | Now (Code on Social Security, 2020) |
|---|---|---|
| Fixed-term employees | 5 years | 1 year, pro-rata |
| Wages for gratuity | Basic + DA, often kept low by salary structuring | Basic + DA + retaining allowance, plus excess over the 50% exclusion cap |
| Part-year rounding | Over six months = full year | Same, now in Rule 33 of the Social Security (Central) Rules, 2026 |
| Maximum gratuity | ₹20 lakh | ₹20 lakh, carried forward |
Sources: Outlook Money on the effective date and fixed-term rule; India Briefing on the wage definition; Legal Service India on Rule 33.
How the 50% wage rule works
The 50% wage rule is a cap on what you can exclude, not a rule that basic pay must be 50%. Add up everything you pay. If HRA, conveyance, special allowance and other excluded items come to more than half of that total, the extra is treated as wages for gratuity, PF and other statutory dues.
Take a ₹50,000 salary with ₹15,000 basic and ₹35,000 in allowances. Half of total pay is ₹25,000, so ₹10,000 of allowances is added back. Wages for gratuity become ₹25,000. Over 10 years, gratuity rises from ₹86,538 to ₹1,44,231.
Does the new wage definition apply to past service?
No. The Ministry of Labour has said the new definition applies from 21 November 2025, and gratuity is paid on the wages last drawn at the time of exit. In practice that means anyone leaving after that date is paid on the new wage figure, as the Maharashtra Labour Department FAQ explains.
What is the maximum gratuity amount?
The maximum statutory gratuity is ₹20 lakh. The Code lets the Central Government notify the ceiling, and the ₹20 lakh figure from the 29 March 2018 notification continues under it (LexComply). Employers can pay more by contract, but anything above ₹20 lakh is taxable for private employees.
Is Gratuity Taxable? (2026-27 Rules)
For private employees, gratuity is tax-free up to the least of three amounts: the gratuity actually received, the formula amount, and ₹20 lakh. Government employees get full exemption with no limit. The exemption is available in both the old and new tax regimes (Tax Garden).
Three points people often miss:
- The ₹20 lakh limit is a lifetime exemption, not per job. Exemption used at an earlier employer reduces what is left now.
- The section number changed. From 1 April 2026, the Income-tax Act, 2025 replaced the 1961 Act, and the gratuity exemption moved from Section 10(10) to Section 19 (Tax Garden). Gratuity received in FY 2025-26 still uses Section 10(10).
- The ₹25 lakh figure is not for private employees. ₹25 lakh is the maximum gratuity the Central Government pays its own staff. The private-sector tax limit stays at ₹20 lakh.
Tax example
Anil from Example 4 receives ₹14,42,308. At an earlier job he already claimed ₹8,00,000 as tax-free gratuity, so only ₹12,00,000 of his lifetime limit is left.
| Item | Amount |
|---|---|
| Gratuity received | ₹14,42,308 |
| Lifetime limit left (₹20,00,000 less ₹8,00,000 already claimed) | ₹12,00,000 |
| Tax-free | ₹12,00,000 |
| Taxable, added to salary income and taxed at the slab rate | ₹2,42,308 |
Enter the earlier exemption in the calculator above and it splits the amount for you.
Gratuity Calculation in Excel (Free Template)
Download the free Mera Udyog gratuity calculator Excel template to calculate gratuity for one employee or your whole team. It has three tabs and no macros.
Download Gratuity Calculator Excel (.xlsx)
- Calculator: one employee, with dates, the 50% wage test, eligibility, tax split and monthly provision.
- Team Liability: up to 200 employees. Set a valuation date and see total accrued gratuity and the monthly provision for your books.
- Read Me: the rules in plain language.
Gratuity formula in Excel
If you prefer to build your own sheet, these are the core formulas. Put the joining date in B1, the last working day in B2 and monthly wages in B3.
| What | Excel formula |
|---|---|
| Completed years | =DATEDIF(B1,B2+1,"y") |
| Extra months | =DATEDIF(B1,B2+1,"ym") |
| Years counted (rounding rule) | =DATEDIF(B1,B2+1,"y")+IF(DATEDIF(B1,B2+1,"ym")>6,1,0) |
| Gratuity (B6 holds years counted) | =MIN(B3*15/26*B6,2000000) |
| Wages after 50% test (C3 = other allowances) | =B3+MAX(0,C3-0.5*(B3+C3)) |
The +1 on the exit date counts the last working day itself as a day of service.
Gratuity for Employers: The 4.81% Provision Rule
An employer should make a gratuity provision of about 4.81% of each employee's monthly wages every month. That number is simply 15 ÷ 26 ÷ 12. It is why many CTC letters show gratuity as 4.81% of basic.
For a 50-person plant with average wages of ₹20,000, that is roughly ₹48,000 a month, or ₹5.77 lakh a year, building up as a liability whether you track it or not. Under the new wage definition, that base may now be higher than your current provision.
Three employer duties to get right:
- Pay within 30 days. The employer must pay gratuity within 30 days of it becoming payable, under Section 56(3) of the Code (The Legal Quotient). Interest on delayed gratuity is simple interest at the notified rate, commonly cited as 10% a year (Outlook Money).
- Run the 50% test on every salary structure. If allowances exceed half of pay, gratuity, PF and bonus bases all move.
- Track fixed-term contracts approaching one year. That is the new trigger point for gratuity.
Why spreadsheets break at scale
A spreadsheet works for one exit. It struggles when joining dates, wage revisions and attendance live in three different places. The usual errors are a wrong joining date, an old basic figure or a missed allowance, each of which changes the final number.
Mera Udyog's payroll software for India keeps employee records, attendance and salary in one app across every plant and outlet. Salary is calculated from attendance, leave and overtime, with Maharashtra statutory payroll rules built in.
Common Gratuity Calculation Mistakes
The most common gratuity mistake is using gross or CTC salary instead of wages. Here are the five that cause most disputes:
| Mistake | Why it is wrong | Do this instead |
|---|---|---|
| 1. Using CTC or gross salary | Gratuity uses wages, not CTC | Use basic + DA + retaining allowance, plus any excess over the 50% cap |
| 2. Ignoring the 50% test | A thin basic understates the wage base | Run the test on every salary structure |
| 3. Dropping part-years | 9 years 7 months is 10 years for a covered employer, not 9 | Round up when the extra months are more than six |
| 4. Dividing by 30 instead of 26 | The divisor of 30 applies only to employers not covered by the Code | Use 26 for employers with 10 or more staff |
| 5. Treating ₹20 lakh as a per-job limit | The private-sector tax limit is lifetime, not per job | Track the exemption already used at earlier jobs |
For other payroll maths, see our overtime calculator and free HR templates. Running a plant or a chain of stores? See how Mera Udyog works as manufacturing ERP software and retail management software, and check Mera Udyog pricing.
FAQ: Gratuity Calculator Questions
How is gratuity calculated in India?
Gratuity = last drawn monthly wages × 15 ÷ 26 × years of service. Wages mean basic pay + DA + retaining allowance, plus any allowances above 50% of total pay. A part-year over six months counts as a full year.
What is the gratuity calculator formula for private employees?
For private employees at establishments with 10 or more staff, the formula is wages × 15 ÷ 26 × years of service. For employers with fewer than 10 staff, the Income-tax formula is average salary of the last 10 months × 15 ÷ 30 × completed years.
Is gratuity payable after 1 year?
Yes, for fixed-term employees under the Code on Social Security, 2020, and in cases of death or disablement. Permanent employees still need five years of continuous service.
Is gratuity calculated on basic or gross salary?
On wages: basic pay, dearness allowance and retaining allowance. Since 21 November 2025, if other allowances exceed 50% of total pay, the excess is added to wages. Gross or CTC is never used directly.
What is the maximum gratuity limit in 2026?
₹20 lakh for statutory gratuity and for the private-sector tax exemption. The ₹25 lakh figure applies to Central Government employees' own gratuity ceiling.
Is gratuity taxable under the new tax regime?
The gratuity exemption is available in both regimes. Private employees get the least of the actual gratuity, the formula amount and ₹20 lakh (lifetime) tax-free. From 1 April 2026 the exemption sits in Section 19 of the Income-tax Act, 2025.
How long does an employer have to pay gratuity?
30 days from the date gratuity becomes payable. After that, the employer owes simple interest on the delayed amount.
Can I calculate gratuity in Excel?
Yes. Use =DATEDIF(joining,exit+1,"y") for completed years, add 1 if the extra months exceed six, then multiply wages × 15 ÷ 26 × years. The free Mera Udyog Excel template does this for one employee or your whole team.
About the Author
This guide is written by the Mera Udyog Team, which builds attendance, payroll and HR software for Indian manufacturers and retail chains. Questions about this gratuity calculator? Write to hello@meraudyog.com.
Sources we checked (12)
- New Labour Codes 2026: What Employers Must Change in Payroll, Kredily, 2026
- Gratuity Under New Labour Codes, Outlook Money, 2026
- India Gratuity Rules 2026-27: Calculation, Tax Treatment, Employer Compliance, India Briefing, June 2026
- Gratuity Act Under the Code on Social Security, 2020: Employer Duties, Legal Service India, October 2026
- FAQs on the Labour Codes, Labour Department, Government of Maharashtra, 2026
- Who Is Eligible for Gratuity in India (2026)?, LexComply, 2026
- Gratuity After 1 Year: Who Is Actually Eligible, Commercial Law Publishers, 2026
- Group Gratuity: What You Get, Ethika, 2026
- Gratuity Calculation, Tax Exemption and Compliance 2026, Tax Garden, 2026
- Is Your Gratuity Taxable? Section 10(10) Rules for AY 2026-27, Tax Garden, September 2026
- Settlement of Claim of Gratuity Under the Social Security Code, 2020, The Legal Quotient
- How Is Gratuity and Interest on Delayed Payment Taxed, Outlook Money