Gratuity Calculator (New Labour Codes)
Work out your gratuity under India’s new Labour Codes — including the 50% wages rule that can raise your payout and the new 1-year eligibility for fixed-term employees. Enter your details for an instant, accurate estimate with the tax-exempt and taxable split.
How gratuity is calculated under the new Labour Codes
From 21 November 2025, gratuity is governed by the Code on Social Security, 2020, which replaced the Payment of Gratuity Act, 1972. The core formula for monthly-rated employees is unchanged:
| Gratuity formula |
|---|
| Gratuity = (15 × Last drawn wages × Completed years of service) ÷ 26 |
Here 15 represents 15 days’ wages (half a month) for each year, and 26 is the assumed number of working days in a month. “Wages” = Basic Pay + Dearness Allowance (plus retaining allowance, if any) — it excludes HRA, overtime, bonus, commission and most other allowances.
The new 50% wages rule — why your gratuity may rise
The biggest change is the new definition of wages. Under the Code, your wages (Basic + DA) must be at least 50% of your total remuneration (CTC). If allowances make up more than half of your pay, the excess is added back to wages for calculating gratuity, PF and other statutory benefits. Because gratuity is computed on wages, a higher wage base means a higher gratuity payout. Switch the calculator to “Apply 50% rule from CTC” to see the impact.
Fixed-term employees: gratuity after 1 year
Earlier, gratuity needed 5 years of continuous service. Under the new Code, fixed-term employees become eligible after just 1 year, paid on a pro-rata basis. Regular (permanent) employees still need 5 years of continuous service to qualify (with the well-known exception that 4 years plus 240 days in the fifth year is often treated as 5 years).
Worked example
A regular employee with last drawn wages (Basic + DA) of ₹50,000 per month and 7 years 8 months of service. Service rounds up to 8 years (8 months > 6). Gratuity = (15 × 50,000 × 8) ÷ 26 = ₹2,30,769. As this is below the ₹20,00,000 limit, the entire amount is tax-free under Section 10(10). A long-serving or high-wage employee whose gratuity crosses ₹20,00,000 would pay tax only on the excess.
Tax treatment of gratuity
For private-sector employees, gratuity is exempt under Section 10(10) up to the least of: (1) actual gratuity received, (2) ₹20,00,000 (lifetime limit), and (3) 15/26 × last drawn wages × completed years. Anything above this is added to your taxable income. Gratuity received by Government employees is fully exempt.
How to claim your gratuity
- Confirm eligibility — 5 years for regular employees, 1 year for fixed-term employees.
- Submit Form I to your employer within 30 days of gratuity becoming payable.
- The employer must pay within 30 days; delay attracts simple interest.
- Check that your wages reflect the new 50% rule — a suppressed basic understates gratuity.
- Keep your appointment letter and salary slips as proof of wages and service period.
Good to know
Is there an upper limit?
There is no cap on the gratuity an employer can pay, but the tax exemption is capped at ₹20,00,000 over your lifetime across all employers.
Death or disablement
If service ends due to death or disablement, the 5-year condition does not apply, and gratuity is paid for the service rendered to the nominee or employee.
Notice on rounding
A part-year of more than 6 months counts as a full year; 6 months or less is ignored. So 6 years 7 months is treated as 7 years.
Related tools
See our HRA Calculator, Tax Regime Calculator and TDS Tool.
Frequently asked questions
When did the new Labour Codes on gratuity take effect?
The four Labour Codes, including the Code on Social Security, 2020 which governs gratuity, were brought into force across India with effect from 21 November 2025.
What is the gratuity formula under the new code?
Gratuity equals 15 multiplied by your last drawn wages multiplied by completed years of service, divided by 26. Wages here mean Basic plus Dearness Allowance plus any retaining allowance.
How does the 50% wages rule change my gratuity?
Your wages for gratuity must be at least 50% of total CTC. If allowances exceed half your pay, the excess is added back to wages, which raises the base on which gratuity is calculated and usually increases your payout.
Do fixed-term employees get gratuity now?
Yes. Under the new code, fixed-term employees are entitled to gratuity on a pro-rata basis after completing just 1 year of service, instead of the earlier 5-year requirement.
Is gratuity taxable?
For private-sector employees gratuity is exempt up to the least of the actual amount, 20 lakh rupees, and the formula amount. Anything above is taxable. Government employees receive fully tax-exempt gratuity.
What is the maximum tax-free gratuity?
The lifetime tax exemption limit for non-government employees is 20 lakh rupees across all employers combined.
Is gratuity payable if I resign before 5 years?
Regular employees generally need 5 years of continuous service. Fixed-term employees qualify after 1 year. In case of death or disablement, the 5-year condition is waived.
Disclaimer: This calculator is for general information and educational purposes only and does not constitute legal or tax advice. Gratuity entitlement depends on your contract, employer type and the final rules notified under the Labour Codes. Verify your figures or consult a qualified professional before relying on them. © ClearTax Advisors.