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.