Gratuity Calculator for Employees in India
By EOR Services India. Last updated 4 November 2026.
Most gratuity disputes start with a wrong number: the wrong wage base, the wrong count of years, or no eligibility check at all. This gratuity calculator applies the 15/26 formula to last drawn basic pay plus dearness allowance and rounds service the way the law does.
An underpaid gratuity ends in a labour complaint, and an unplanned one hits the books on the day someone leaves. Check the amount for one employee or a whole team, and see the monthly provision to set aside.
Amounts are rounded to the nearest rupee. The result is an estimate based on the statutory formula. Your contract or policy may pay more, and the wage base must follow the labour code definition of wages.
How gratuity is calculated in India
Gratuity equals last drawn wages, multiplied by 15, divided by 26, multiplied by the completed years of service. The 15 stands for 15 days of wages for each year. The 26 stands for the working days in a month, so one day of wages is monthly wages divided by 26.
Take an employee on ₹30,000 basic plus DA with exactly five years of service. One day of wages is ₹1,154. Fifteen days come to ₹17,308 for each year, and five years give ₹86,538.
Part years follow one rule. If the final year of service runs past six months, it counts as a full year. Six months or less is dropped. An employee with 7 years and 8 months is paid for 8 years. One with 7 years and 6 months is paid for 7.
Gratuity calculation examples
These examples use the same rounding as the calculator. Only the last row hits the statutory limit.
| Last drawn wages | Service | Years counted | Employee type | Gratuity |
|---|---|---|---|---|
| ₹30,000 | 5 years | 5 | Permanent | ₹86,538 |
| ₹50,000 | 7 years 6 months | 7 | Permanent | ₹2,01,923 |
| ₹50,000 | 7 years 8 months | 8 | Permanent | ₹2,30,769 |
| ₹1,00,000 | 10 years | 10 | Permanent | ₹5,76,923 |
| ₹40,000 | 1 year | 1 | Fixed term | ₹23,077 |
| ₹2,00,000 | 25 years | 25 | Permanent | ₹20,00,000 (formula gives ₹28,84,615) |
Who is eligible for gratuity
A permanent employee needs five years of continuous service with the same employer. Gratuity is payable on retirement, resignation, superannuation, or death or disablement. The five year test does not apply when the cause is death or disablement from an accident or disease.
Fixed term employees now qualify after one year of service, paid in proportion to the contract period. The rule applies to those who joined on or after 21 November 2025. Our guide on gratuity for fixed term staff covers how to budget for it, and our note on fixed term employment in India explains the equal benefits that come with it.
Gratuity applies to shops and establishments that employ 10 or more people, or did so on any day in the previous 12 months. Smaller employers can still offer it by contract.
What counts as wages for gratuity
Wages for gratuity are basic pay plus dearness allowance, and retaining allowance where it is paid. House rent allowance, bonus, overtime and most other allowances sit outside the base. The labour codes add a floor: if excluded allowances go above 50% of total pay, the excess is added back to wages. That raises the gratuity base for staff with a low basic.
We explain the effect on pay and gratuity in our guide to the 50% basic wage rule. For the full pay breakdown, see our salary structure in India guide.
Maximum gratuity and tax treatment
The statutory limit is ₹20 lakh, unless the Central Government revises it. For private sector employees, gratuity up to ₹20 lakh is exempt from income tax, and that limit is a lifetime total across employers. Any amount above it is taxed at slab rates.
Employees of establishments outside the Act get a different exemption. It is the least of ₹20 lakh, the gratuity actually received, and half a month of average salary for each completed year, using the average of the last 10 months. Pick the last option in the calculator to see that figure.
When gratuity must be paid
The employer must arrange payment within 30 days of the amount becoming payable. Late payment carries simple interest unless the employee caused the delay. Gratuity belongs in the exit file with notice pay and leave dues, which is why it appears in our guide to full and final settlement in India. Leave dues have their own rules, covered in our note on leave encashment in India.
The Act allows gratuity to be forfeited, in whole or in part, for termination caused by wilful damage, violence or certain offences. Do not withhold it on that ground without written legal advice.
How to budget for gratuity every month
Gratuity is a liability that grows from the first day of service. Setting aside 15/26 of a month of wages, divided by 12, comes to about 4.81% of monthly wages. On ₹50,000 of wages that is ₹2,404 a month. Provide for it monthly and the payout never arrives as a surprise.
Add the provision to the rest of the statutory load: use our EPF contribution calculator for provident fund, and read our guide to the cost of Employer of Record services in India for the full monthly cost of a hire.
Gratuity when you hire through an Employer of Record
If you employ people in India without your own entity, the Employer of Record is the legal employer. It carries the gratuity liability, tracks service dates, and pays the amount at exit through the final settlement. Ask for the provision to be shown as a line in the monthly invoice so your budget matches the liability, and for the fee structure in writing. The service fee starts from $49 per employee per month at EOR Services India.
See how our Employer of Record services in India handle payroll, statutory benefits and exits, or read the guide to the new labour codes for the wider changes behind these rules.
Gratuity calculator FAQs
How is gratuity calculated in India?
Gratuity equals last drawn wages multiplied by 15, divided by 26, multiplied by the completed years of service. Wages mean basic pay plus dearness allowance. A service period past six months in the final year counts as a full year. For ₹50,000 of wages and 8 counted years, the gratuity is ₹2,30,769.
How many years of service are needed for gratuity?
A permanent employee needs five years of continuous service. A fixed term employee needs one year, under the Code on Social Security, for those who joined on or after 21 November 2025. No minimum applies when the employee dies or becomes disabled from an accident or disease.
Is 4 years and 8 months enough for gratuity?
The Act asks for five years of continuous service. The six month rounding rule applies to the amount once the minimum is met, not to the eligibility test. Courts have looked at continuous service case by case, so take legal advice before you refuse a claim.
What is the maximum gratuity amount in India?
The statutory limit is ₹20 lakh, unless the Central Government revises it. The formula can produce a higher number for long serving senior staff, and the payout is capped at the limit.
Is gratuity taxable?
For private sector employees, gratuity up to ₹20 lakh is exempt from income tax, and the limit is a lifetime total across employers. The part above it is taxed at slab rates. Employees of establishments outside the Act get an exemption worked out on half a month of average salary for each completed year.
Is gratuity calculated on basic salary or CTC?
Gratuity is calculated on wages, which are basic pay plus dearness allowance, not on CTC. Under the labour codes, if excluded allowances exceed 50% of total pay, the excess is added back to wages, so the base can be higher than basic pay alone.
When must gratuity be paid after resignation?
The employer must arrange payment within 30 days of the amount becoming payable. Late payment carries simple interest unless the employee caused the delay.
Who pays gratuity when you hire through an Employer of Record?
The Employer of Record is the legal employer, so it carries the liability and pays the amount at exit. Ask for the monthly provision to be shown in your invoice, so the cost does not arrive as a surprise.
Sources: TaxGuru analysis of gratuity under the Code on Social Security, Patron Accounting on the one year rule for fixed term staff and Business Today on the labour code and gratuity tax.
This calculator and page are general information, not legal or tax advice. Confirm treatment for your establishment with a qualified practitioner or your payroll provider.
