Gratuity formula
Gratuity = 15 × last monthly (basic + DA) × years of service ÷ 26
15 days’ wages for every year of service, with a month taken as 26 working days. Service of 6 months or more in the last year rounds up to a full year. With ₹60,000 basic + DA and 8 years 7 months of service, you are paid for 9 years: 15 × 60,000 × 9 ÷ 26 = ₹3,11,538.
Who gets gratuity
- Employees with at least 5 years of continuous service at an employer with 10 or more employees.
- Under the Code on Social Security, in force from 21 November 2025, fixed-term employees qualify after 1 year.
- On death or disability the 5-year condition does not apply.
- The labour codes also say “wages” must be at least 50% of total pay; if allowances are more than half your pay, the excess is added to wages, which can raise gratuity.
Tax on gratuity
For private-sector employees, gratuity up to ₹20 lakh in a lifetime is tax-free; any amount above is taxed at your slab rate. Government employees’ gratuity is fully exempt.
Employers not covered by the law
If your employer is not covered, gratuity is voluntary. When paid, the tax-free part is worked out with half a month’s average salary for each completed year (15/30), which the calculator shows when you untick the box.
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Questions people ask
Is gratuity paid if I resign before 5 years?
Not usually, unless you are a fixed-term employee (1 year is enough) or the reason is death or disability. Some courts have counted 4 years 240 days as 5 years for six-day-week workplaces, but employers vary.
How soon must gratuity be paid?
Within 30 days of it becoming payable. Late payment carries simple interest.