2026 gratuity estimate: Check employment status, continuous service and eligible wages before applying the formula.
Estimate statutory gratuity for a covered, monthly-rated employee using the 2026 Central Rules. The tool distinguishes a direct fixed-term contract from labour supplied by a contractor, checks the ordinary minimum service and uses eligible wages entered by you. The tax exemption needs a separate computation.
Read the short guide first so the numbers make sense, then scroll to the calculator.
What is gratuity?
Gratuity is an employer-paid benefit on an eligible termination, retirement, resignation or other statutory event. Death can make it payable to the nominee or heirs; disablement is a separate ground for payment to the employee. Check coverage under the Code on Social Security, 2020.
Who is eligible, and what changed for contract staff
For a permanent employee, gratuity becomes payable after five years of continuous service with the same employer. The five year condition is waived if the exit is due to death or disablement.
A direct fixed-term employee can qualify on expiry of the contract after at least one year of service under that contract. This is different from labour supplied through a contractor. The Ministry FAQ identifies the contractor as employer for contract labour and does not give every agency worker the direct fixed-term exception. Central Rule 33 also addresses rounding of a subsequent period exceeding six months.
How gratuity is calculated
For employees covered by the Act, the formula is:
Gratuity = (15 x last drawn salary x years of service) / 26
Use the last drawn eligible monthly wages for gratuity, determined from the statutory wage definition and any required allowance add-back. For an ordinary covered monthly-rated employee, multiply by 15/26 and the counted service years. A remaining period over six months counts as an additional year for the illustrated method; this rounding does not itself satisfy a minimum-service eligibility test.
For example, on a last basic plus DA of Rs 50,000 a month with 10 years of service, gratuity works out to (15 x 50000 x 10) / 26, which is about Rs 2,88,462.
Why your gratuity may go up under the new wage rule
The 50% rule is an add-back test for specified excluded payments in the statutory remuneration computation. It does not universally require basic pay plus DA to equal 50% of CTC. Employer contributions, reimbursements and other components need classification; the calculator therefore asks for eligible gratuity wages instead of automatically using half of CTC. See our wage-definition guide, or find the eligible wages for a full CTC with our salary structure calculator, which runs the add-back test and shows the gratuity provision for each employee.
Two worked gratuity examples
Example 1: confirmed wages and ten years of service
Assume Priya is a covered monthly-rated employee who leaves after ten completed years, with eligible gratuity wages confirmed at Rs 50,000 per month. The calculation is 15 × Rs 50,000 × 10 ÷ 26 = Rs 2,88,462, rounded for display. The Rs 50,000 input comes from a payroll wage review, not an assumption that half of her CTC must be used.
Example 2: a direct fixed-term contract
Assume Arjun’s direct fixed-term contract expires after three completed years, his eligible monthly wages are Rs 40,000, and Central Rule 33 applies. The estimate is 15 × Rs 40,000 × 3 ÷ 26 = Rs 69,231. A six-month direct contract does not meet the one-year condition. A worker supplied by an agency does not automatically receive this fixed-term treatment.
How much gratuity is tax free?
Specified government gratuity can be fully exempt. For a non-government employee, the relevant statutory exemption category matters: covered employees and other employees have different formula rules. Actual receipt, the applicable formula, the Rs 20 lakh notified limit and earlier exempt gratuity must be checked as applicable. This tool does not label its whole estimate tax-free. Ask for the employer’s gratuity and tax working before using the amount in a return.
Need to file your return after a job change? Use our ITR form finder to pick the right form, and the HRA exemption calculator if you also claim house rent allowance. For the official rules, see the Ministry of Labour and Employment at labour.gov.in and the tax exemption on the income tax e-filing portal.
This calculator gives an estimate for general guidance and is not legal or tax advice. The exact pro-rata method for fixed-term staff and special cases can vary, so confirm with your employer or a qualified professional.
See all our free tax calculators and tools
Bookmark this gratuity calculator and revisit it whenever your basic pay, CTC, or length of service changes. A quick recheck with the gratuity calculator 2026 means no surprises on your last working day.
Frequently asked questions
Do fixed-term and agency workers have the same gratuity rule?
No. A direct fixed-term employee can qualify on contract expiry with at least one year under the contract. Agency labour is a different category, with the contractor as employer; the ordinary five-year condition and any statutory exceptions need a separate check.
What is the gratuity formula?
For the monthly-rated covered employees illustrated here, use 15 × eligible last drawn monthly wages × counted service years ÷ 26. A remaining period over six months can count as another year under the applicable rule. Confirm eligibility separately.
How many years do permanent employees need?
Five years of continuous service with the same employer. This is waived if the exit is due to death or disablement.
How much gratuity is tax free?
The exemption depends on the employee category and applicable formula, actual gratuity received, the notified limit and earlier exempt gratuity. The statutory payment estimate alone does not establish the tax-free amount.
Is gratuity based on basic salary or full salary?
Use wages determined under the statutory definition, including any required add-back. It is not automatically full CTC, basic plus DA alone, or half of CTC.
When did the new gratuity rules take effect?
The Code on Social Security took effect from 21 November 2025. The Social Security (Central) Rules, 2026 were notified in May 2026. Apply the provisions and rules appropriate to the establishment and exit date.
Will my gratuity actually increase under the new wage rule?
It depends on the actual wage components and statutory add-back, along with service and coverage. A basic-to-CTC percentage alone cannot establish whether the gratuity amount increases.
Can I claim gratuity if I resign before five years?
The ordinary permanent-employee test is five years of continuous service, with statutory exceptions such as death or disablement. Direct fixed-term contract expiry has its own one-year condition. Agency work does not automatically get that exception; early resignation from a fixed-term contract also needs review.
What is the maximum gratuity payable?
This estimate uses the Rs 20 lakh statutory payment ceiling. Better terms under an award, agreement or contract can allow more. The taxable portion depends on the applicable income-tax exemption; government and non-government cases must not be combined into one rule.
Official reference: Income-tax Act, 2025 (as amended by the Finance Act, 2026), Income Tax Department.
Related free calculators: ITR-1 (Sahaj) for AY 2026-27, Zoho Payroll setup guide for India.
Sources: Social Security Central Rules 2026, Rule 33; Ministry clarification on wages and contract labour; Income-tax Act 2025, section 19 gratuity deductions.