Gratuity Calculator India: 2026 rules, formula and tax-free limit

Gratuity formula: how gratuity calculation works

The law sets the rate at fifteen days of wages for every completed year of service, and tells monthly-paid employees to find one day of wages by dividing the monthly rate by 26 (Act, s.4(2) and its Explanation; Code, s.53(2) and Explanation 3). That gives the gratuity calculation formula every payroll team in India uses:

What each input means

Is gratuity a percentage of salary?

Not in the law, but the formula can be written as one. 15 ÷ 26 of a month of basic + DA for each year is 57.7 percent of one month, or 4.81 percent of a year of basic + DA. That 4.81 percent is the gratuity percentage HR teams plug into CTC sheets, which is why it appears in your offer letter long before you are eligible. The in hand salary calculator shows where it sits next to PF and HRA in your own CTC, and how much it takes out of your monthly pay.

How do I calculate my gratuity?

Take your last drawn monthly basic salary plus dearness allowance, multiply it by 15, divide by 26, then multiply by your years of service, counting a final part year longer than six months as a full year. The result is your gratuity under the Payment of Gratuity Act, capped at Rs 20 lakh.

1. Find the wage. Basic + DA from your last payslip. Ignore HRA, special allowance, bonus and overtime.
2. Count your service. Years from your joining date to your last working day. Add a year if the leftover months are seven or more.
3. Apply the formula. Wage × 15 ÷ 26 × years.
4. Apply the cap. If the answer is above ₹20,00,000, the Act pays ₹20,00,000. Your contract can promise more (Act, s.4(5)).
5. Check eligibility. Five years of continuous service, unless you are leaving on death, disablement or the end of a fixed-term contract.

How is gratuity calculated in 2026?

Still fifteen days of basic + DA for every completed year, with a month taken as 26 working days. What changed on 21 November 2025 is the law behind it: the Code on Social Security, 2020 replaced the Payment of Gratuity Act, kept the formula, widened the definition of wages and dropped the five-year rule for fixed-term contracts.

• Formula unchanged. Section 53(2) of the Code repeats the fifteen days per completed year, the part-year rule and the divide-by-26 explanation in substance, adding only that the Central Government may notify a different number of days.
• Wages are defined more widely. Section 2(88) counts basic pay, dearness allowance and retaining allowance. If HRA, bonus, overtime, commission and the other excluded items exceed half of your total remuneration, the excess is added back to wages. The Ministry of Labour expects this to raise the wage base, and so gratuity, for employees whose basic is a small share of pay.
• Fixed-term employees qualify sooner. Section 53 drops the five-year condition when a fixed-term contract ends and pays gratuity pro rata. The Code itself sets no minimum; the Ministry of Labour states that fixed-term employees become eligible after one year of continuous service. Working journalists need three years.
• The Rs 20 lakh cap continues. Section 53(3) lets the Central Government notify the ceiling, and section 164(2) of the Code keeps notifications issued under the old Act in force until they are replaced. We found no later notification as of October 2026.
• Tax rules moved to a new Act. The Income-tax Act, 2025 applies from 1 April 2026. Section 19 carries the gratuity exemption that used to sit in section 10(10) of the 1961 Act, with the same three-way test.

How do they calculate the gratuity?

Your employer takes the basic + DA on your last payslip, counts your continuous service from your joining date, applies the 15 ÷ 26 formula, rounds a part year above six months up to a full year, and caps the total at Rs 20 lakh unless your contract promises more. It has 30 days to pay.

• Continuous service includes leave, sickness, accident, lay-off, strike and lock-out. A year in which you actually worked 240 days (190 days for work below ground in a mine or in an establishment working under six days a week) counts as a full year, and 120 days (95) counts as six months (Act, s.2A; Code, s.54).
• Notice and payment. As soon as gratuity becomes payable the employer must work out the amount and notify you in writing, whether or not you have applied, and pay within thirty days of the date it became payable (Act, s.7(2) and 7(3); Code, s.56).
• Interest on delay. If payment is late, simple interest runs from the due date to the date of payment at the rate the Central Government notifies (Act, s.7(3A)).
• Better terms win. Nothing in the formula stops an award, agreement or contract giving you more (Act, s.4(5); Code, s.53(5)).
• Forfeiture is narrow. Gratuity can be cut only to the extent of damage caused by a wilful act or negligence that led to dismissal, or forfeited for dismissal over riotous or violent conduct or an offence of moral turpitude committed at work (Act, s.4(6); Code, s.53(6)).

Is gratuity 5 years or 4.8 years?

The Act says five years of continuous service, and the Code repeats it. Both laws also count 240 working days in a year as a full year. Reading the two together, the Madras, Kerala and Delhi High Courts have held that 4 years plus 240 days in the fifth year qualifies. The Supreme Court has not settled the point.

What this means in practice: if you are leaving at around 4 years 8 months or more, you may satisfy the 240-working-day rule for your fifth year and have an arguable claim backed by three High Courts, which is why the calculator above flags that band. But the statute still reads five years, the decided cases involved 4 years 9 months or longer, a High Court ruling binds only its own state, and many employers will say no until the controlling authority under the Code orders payment. If the amount matters, time your last working day for the five-year mark rather than litigate it. The five-year rule does not apply at all on death, disablement or the end of a fixed-term contract.

Gratuity and the rest of your exit pay

Gratuity is one line in your full and final settlement. The others are unpaid salary, leave encashment, bonus and any notice-period recovery or buyout. Our guide to notice period rules in India covers the deduction most people are surprised by, and the relieving letter is the document that fixes your last working day, which is the date gratuity is counted to.

If you are planning to leave close to the five-year mark, write the dates into your resignation letter so there is no dispute later about when service ended. Your last salary slip is the record of the basic and DA the formula uses.