Question 1

What is the gratuity formula?

Accepted Answer

For an employer covered by the Payment of Gratuity Act: last drawn (basic + DA) × 15 ÷ 26 × completed years of service. Fifteen days of wages for every year, on a 26-working-day month. Employers not covered use 30 days in the denominator.

Question 2

How are part years counted?

Accepted Answer

Under the Act, more than six months in the final year counts as a full year; six months or less is dropped. For seven years and seven months the calculator uses eight years. Employers outside the Act count only completed years.

Question 3

Who is eligible?

Accepted Answer

Employees who complete five years of continuous service with one employer, on resignation, retirement, superannuation or termination. The five-year rule does not apply on death or disablement. Fixed-term employees qualify after one year under the Code on Social Security, 2020.

Question 4

How much gratuity is tax-free?

Accepted Answer

Up to ₹20 lakh for private-sector employees covered by the Act, cumulative across all employers in a lifetime. Government employees are exempt in full. Anything above the limit is taxed as salary at slab rate.

Question 5

When must the employer pay?

Accepted Answer

Within 30 days of it becoming payable. Delay attracts simple interest at the rate the central government notifies.

Question 6

Did the labour codes change gratuity?

Accepted Answer

The Code on Social Security, 2020 (in force from November 2025) carries the same 15/26 formula and five-year rule, adds the one-year rule for fixed-term staff, and uses the Code's wider definition of wages, which can raise the base if allowances exceed 50% of total pay.

Years counted	5
Tax-free (up to ₹20,00,000)	₹0
Taxable at slab rate	₹0

Gratuity calculator India

Worked example

For employers: provisioning and the wage base

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