Use this gratuity calculator to estimate the gratuity you are owed when you leave a job in India, and to see how much of it is tax free. It uses the standard formula and reflects the new labour code rules, including the big change that now lets fixed-term and contract employees claim gratuity on a pro-rata basis.
Read the short guide first so the numbers make sense, then scroll to the calculator.
What is gratuity?
Gratuity is a lump sum your employer pays you as a thank you for long service. It was governed by the Payment of Gratuity Act, 1972, and is now part of the Code on Social Security, 2020. You usually receive it when you retire, resign, or your job ends, and your family receives it if you pass away or are disabled while in service.
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.
The important change is for fixed-term and contract staff. Under the Code on Social Security, 2020, which came into effect on 21 November 2025, fixed-term and many contract employees are now entitled to gratuity on a pro-rata basis, without having to complete the usual five years. So if you work a shorter contract, you can still earn gratuity in proportion to the time you served. This is a real shift, because earlier most contract workers got nothing unless they crossed five years.
How gratuity is calculated
For employees covered by the Act, the formula is:
Gratuity = (15 x last drawn salary x years of service) / 26
Here salary means your last drawn basic pay plus dearness allowance. The 15 and 26 stand for 15 days of wages for each completed year, counted on a 26 day working month. A part of a year over six months counts as a full year, so 5 years and 7 months is treated as 6 years.
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 new labour codes also say your wages, meaning basic pay plus dearness allowance, must be at least 50 percent of your total pay. For many people this raises the basic component, and since gratuity is built on basic plus DA, a higher basic means a higher gratuity. You can see how that reshapes your salary in our guide to the new labour codes and the 50 percent wage rule.
Old vs new gratuity: two worked examples
The new labour codes change gratuity in two big ways. Here is what they look like in actual rupees, and you can reproduce both figures with the gratuity calculator above.
Example 1: the 50% wage rule lifts a salaried payout
Priya earns a monthly CTC of Rs 1,00,000. Her old salary structure kept basic plus DA at just Rs 30,000, with the rest paid as allowances. She leaves after 10 years of service.
| Basis | Old structure | New wage rule (2026) |
|---|---|---|
| Wages used for gratuity | Rs 30,000 | Rs 50,000 (50% of CTC) |
| Formula | 15 x 30,000 x 10 / 26 | 15 x 50,000 x 10 / 26 |
| Gratuity payable | Rs 1,73,077 | Rs 2,88,462 |
Same salary, same service, yet Priya now receives Rs 1,15,385 more, about 67% higher, simply because gratuity wages must be at least half of CTC. Want to see how your own pay splits into basic and allowances? Try our take-home and CTC calculator.
Example 2: contract staff now qualify
Arjun works a 3 year fixed-term contract at Rs 40,000 a month, and his contract is not renewed.
| Basis | Before the codes | Under the codes (2026) |
|---|---|---|
| Eligibility | Needed 5 years | Pro-rata, no 5 year wait |
| Gratuity payable | Rs 0 | Rs 69,231 |
Earlier, most contract workers left with nothing because they had not crossed five years. Under the codes, Arjun earns gratuity in proportion to the time he served. Use the gratuity calculator above to run your own numbers for any salary and tenure.
How much gratuity is tax free?
For government employees, gratuity is fully exempt from tax. For everyone else, the exemption is the least of the actual gratuity received, the amount the formula gives, and a ceiling of Rs 20 lakh. Anything above that ceiling is added to your income and taxed. The gratuity calculator above also splits your payout into the tax free and taxable parts. When you decide between the two tax regimes, our old vs new regime calculator can help you see the overall picture.
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 contract employees get gratuity now?
Yes. Under the Code on Social Security, 2020, in force from 21 November 2025, fixed-term and many contract employees are entitled to gratuity on a pro-rata basis, without completing the usual five years of service.
What is the gratuity formula?
For employees covered by the Act it is (15 x last drawn basic plus DA x years of service) divided by 26. A part year of more than six months counts as a full year.
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?
For non-government employees, the exemption is the least of the actual gratuity, the formula amount, and Rs 20 lakh. Amounts above that are taxable.
Is gratuity based on basic salary or full salary?
It is based on your last drawn basic pay plus dearness allowance, not your full CTC. Because the new wage rule raises the basic component, gratuity often rises too.
When did the new gratuity rules take effect?
The Code on Social Security, 2020 came into force on 21 November 2025. It folds in the Payment of Gratuity Act, extends gratuity to fixed-term staff on a pro-rata basis, and ties gratuity wages to at least 50% of CTC.
Will my gratuity actually increase under the new wage rule?
Only if your basic plus DA was below half of your CTC. If it was already 50% or more, your gratuity stays the same. If allowances were a big part of your pay, your gratuity can rise noticeably.
Can I claim gratuity if I resign before five years?
Permanent employees still need five years, unless they leave due to death or disablement. Fixed-term and many contract employees can now claim gratuity on a pro-rata basis without the five year wait.
What is the maximum gratuity payable?
The statutory ceiling under the Act is Rs 20 lakh. Employers can pay more as ex-gratia, but anything above Rs 20 lakh is fully taxable in your hands.
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.