Gratuity Calculator (India, 2026 rules)
Gratuity in India = last monthly wage (basic pay + dearness allowance) × 15 ÷ 26 × years of service. Since 21 November 2025 the Code on Social Security, 2020 governs it: permanent employees qualify after 5 years, fixed-term employees after 1 year, and allowances above 50% of total pay are added back to the wage. The statutory maximum is ₹20 lakh.
· Calculated with AiStaffo
The rules in India
| Law | Code on Social Security, 2020, Section 53 (in force from 21 November 2025; replaces the Payment of Gratuity Act, 1972) |
|---|---|
| Who is covered | Employees of establishments with 10 or more employees |
| Wage used | Last drawn basic pay + dearness allowance. If other allowances are more than 50% of total pay, the excess is added to the wage |
| Formula | Wage × 15 ÷ 26 × years of service |
| Years of service | Completed years; a final part year of more than 6 months counts as a full year |
| Minimum service | 5 years for permanent employees (not needed on death or disablement); 1 year for fixed-term employees |
| Maximum | ₹20 lakh |
| Resignation | No reduction once eligible |
The 50% wage rule
The new Code stops employers keeping basic pay artificially low. Add up basic pay, dearness allowance and every other allowance. If the allowances are more than half of that total, the part above half is treated as wage for gratuity.
Example: basic + DA ₹30,000, allowances ₹40,000, total ₹70,000. Half of the total is ₹35,000, so allowances exceed it by ₹5,000. The wage for gratuity is ₹30,000 + ₹5,000 = ₹35,000. The calculator does this for you when you enter allowances.
Worked example
Last basic + DA ₹60,000 a month, 7 years and 8 months of service. The 8 months count as a full year, so 8 years are used.
₹60,000 × 15 ÷ 26 = ₹34,615 per year of service. × 8 years = ₹2,76,923, well under the ₹20 lakh limit.
Fixed-term employees
Under the Code, an employee on a fixed-term contract who completes one year of continuous service is entitled to gratuity on a proportionate basis. The calculator applies the same 15 ÷ 26 formula to their years of service. The central rules on exactly how "proportionate" is worked out are still being clarified, so check the final figure with your employer.
If your employer is not covered
Establishments with fewer than 10 employees do not have to pay gratuity under the Code. If they pay it anyway, income tax exempts up to half a month's average salary (last 10 months, basic + DA) for each completed year. Choose "No" under "Employer covered" to see that limit.
Tax
For employees covered by the gratuity law, the gratuity worked out under the law is tax-free up to the ₹20 lakh limit, under Section 19 of the Income-tax Act, 2025. Any amount paid above the legal figure is taxed as salary. The new tax Act still refers to the old Payment of Gratuity Act; most advisers read it as applying to the Code too.
For employers: gratuity is one line of what a role costs
Gratuity, leave, statutory contributions and notice periods all sit on top of salary. Routine back-office roles such as data entry, follow-ups, reconciliations and reporting can be handed to AI workers that carry none of these costs. Book a free automation audit and we will put your own figures on it.
Please note: this calculator follows the published law and common practice as checked on 21 October 2026. It is a guide, not legal advice. Contracts can give more than the legal minimum, and special cases (part-time work, free zones, disputes) can change the figure, so confirm the final amount with your HR team or a lawyer before paying or accepting a settlement.
Sources
Questions people ask
How is gratuity calculated in India?
Can I get gratuity before 5 years?
What changed with the new labour code?
Is gratuity taxable?
Does resigning reduce gratuity?
Why divide by 26?
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