Gratuity Calculator (India)

Gratuity is a lump-sum benefit paid by an employer to an employee as a token of appreciation for continuous service, typically at retirement, resignation, or termination after at least five years of service (the five-year rule is relaxed in case of death or disability). It is governed in India by the Payment of Gratuity Act, 1972, for most establishments with ten or more employees.

Gratuity is a lump-sum benefit paid by an employer to an employee in recognition of continuous service. Until late 2025, the rule was simple and uniform: everyone, permanent staff and contract staff alike, needed 5 years of continuous service before gratuity became payable, except in cases of death or disablement. That changed with the Code on Social Security, 2020, which came into force on 21 November 2025 and now treats permanent employees and fixed-term employees differently for eligibility purposes, while keeping the underlying formula the same for both.

Permanent employees — the 5-year rule still applies. If you are a permanent employee, nothing has changed for you: you still need to complete 5 years of continuous service with the same employer before you qualify for gratuity (again, this is waived if you die or are disabled while in service). The formula remains 15 days of your last drawn Basic + DA for every completed year of service, divided by 26 (the standard working days in a month). Worked example (Permanent): suppose your last drawn Basic + DA is ₹50,000/month and you have completed 10 years and 7 months of service. Since 7 months is 6 or more, your service is rounded up to 11 years, so your gratuity works out to (15 × ₹50,000 × 11) ÷ 26 ≈ ₹3,17,307.

Fixed-term employees — eligible after just 1 year, under the new labour code. This is the headline change. Fixed-term (contract) employees are now eligible for gratuity after completing just 1 year of continuous service, instead of waiting 5 years like before. This was introduced specifically to give contract and project-based staff the same social security protection as permanent employees, since most fixed-term contracts run for only 1–3 years and workers were routinely missing out on gratuity entirely under the old 5-year rule. The formula and divisor stay identical to the permanent-employee case — only the minimum qualifying period changes. Worked example (Fixed-Term): suppose your last drawn Basic + DA is ₹40,000/month and you completed 1 year and 8 months on a fixed-term contract. Since 8 months is 6 or more, your service is rounded up to 2 years, so your gratuity works out to (15 × ₹40,000 × 2) ÷ 26 ≈ ₹46,154 — an amount you simply would not have received at all under the pre-2025 rule, since you hadn't completed 5 years.

Formula used (same for both employment types): Gratuity = (15 × Last Drawn Basic + DA × Rounded Years of Service) ÷ 26. Years of service are rounded up to the next full year whenever the additional months beyond a completed year are 6 or more; otherwise the extra months are ignored. This calculator applies that exact rule regardless of whether you select Permanent or Fixed-Term — the only thing the toggle changes is the minimum-service eligibility check.

The gratuity amount is also subject to a cap of ₹20,00,000, which is also the current tax-exempt limit for private-sector employees. This calculator applies that cap automatically to whichever type of employee you select — any amount an employer voluntarily pays above this, under their own scheme, is treated as an ex-gratia payment for tax purposes rather than statutory gratuity.

One more change worth knowing: the new labour codes also introduced a "50% wage rule," which requires that Basic + DA make up at least 50% of an employee's total CTC. If your salary structure currently has a lower basic with heavy allowances, your employer may need to restructure it — and since gratuity is calculated only on Basic + DA, a higher basic salary under this rule can meaningfully increase your gratuity payout even without any change to your years of service.

Engineering employment in India doesn't always look like a single continuous job. EPC (Engineering, Procurement, Construction) projects, O&M contracts, and manpower-supply arrangements common in power, process, and infrastructure sectors routinely place engineers on fixed-term contracts tied to a specific project or site — a transformer commissioning, a plant shutdown, a pipeline build — rather than open-ended permanent rolls. Before the Code on Social Security, 2020 took effect, this meant many site and project engineers moved from contract to contract for years without ever completing the 5-year continuous-service threshold, and so never became eligible for gratuity at all despite years of cumulative site work.

The 1-year eligibility rule for fixed-term employees changes that calculation meaningfully for this segment of the engineering workforce. An engineer on a 2-year EPC site contract, or a series of back-to-back 1-year O&M renewals with the same employer, is now positioned to receive gratuity at the end of each qualifying stint — something that was structurally unlikely for most project-based engineers under the old uniform 5-year rule.

What to check on your own contract: confirm with HR whether your role is classified as "fixed-term employee" under your appointment letter — this status, not just contract duration, is what triggers the 1-year rule. Also check whether continuous service resets if there's a gap between contract renewals; a broken service record (even a short gap between one project-based contract ending and the next starting) can affect whether tenure is treated as continuous for gratuity purposes. For engineers on deputation between a parent company and a site-specific SPV (special purpose vehicle), clarify which entity is the employer of record, since that determines who pays the gratuity and against which tenure.