Last Updated on November 5, 2026 by Abhijit Divekar
Quick answer: Gratuity = 15 days’ wages for every year of service, worked out as last monthly wages x 15 x years / 26. Wages means Basic + DA, and under the Labour Codes, if allowances are more than half of total pay, the excess is added back. Permanent staff qualify after 5 years; fixed-term staff after 1 year, on a pro rata basis.
Basic + DA + all allowances. Used for the 50% wage rule.
Estimated gratuity
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How the gratuity calculator works
The calculator uses the standard formula: last monthly wages x 15 x years of service / 26. The 15 is fifteen days of pay for each year, and 26 is the number of working days in a month. For a permanent employee, a part year of more than 6 months counts as a full year, and 6 months or less is dropped. For a fixed-term employee, gratuity is paid pro rata on the actual service, so the extra months count as a fraction of a year.
If you enter total monthly pay, the calculator applies the Labour Code wage rule: when allowances are more than 50% of total pay, the part above 50% is added to wages. In practice, wages for gratuity become at least half of total pay.
Worked examples
| Employee | Wages used | Years counted | Gratuity |
|---|---|---|---|
| Basic + DA ₹40,000, 7 years 8 months, permanent | ₹40,000 | 8 | ₹1,84,615 |
| Total pay ₹80,000 with Basic + DA ₹30,000, 6 years 3 months, permanent | ₹40,000 (50% rule) | 6 | ₹1,38,462 |
| Basic + DA ₹25,000, 1 year 6 months, fixed-term | ₹25,000 | 1.5 | ₹21,635 |
In the second example, gratuity on Basic + DA alone would be ₹1,03,846. The 50% rule adds about ₹34,600.
Rules employers should know
- Who is covered: establishments with 10 or more employees. Once covered, the rule keeps applying even if headcount later falls below 10.
- When it is paid: on resignation, retirement, death or disablement. On death or disablement, the 5-year minimum does not apply.
- Near misses: the rounding above applies to the amount once an employee qualifies. Whether someone at 4 years and 7 months has met the 5-year rule depends on days actually worked, so check the dates before deciding.
- Time limit: pay within 30 days of it becoming due, or interest applies.
- Upper limit: the statutory maximum is ₹20,00,000; the calculator caps the result there. You can pay more as a policy.
- In CTC: many employers budget 4.81% of Basic + DA a month as a gratuity provision (15 / 26 / 12).
Gratuity calculator: questions employers ask
How is gratuity calculated in India?
Last monthly wages (Basic + DA) x 15 x completed years of service / 26. Under the Labour Codes, if allowances are more than half of pay, the excess is added to wages first.
Do fixed-term employees get gratuity after 1 year?
Yes. Under the Code on Social Security, 2020, fixed-term employees qualify after 1 year of service and are paid pro rata for the actual period worked.
Is 4 years 8 months counted as 5 years for gratuity?
Not automatically. Rounding up applies to the amount once an employee qualifies. For the 5-year eligibility test, check the actual days worked before deciding.
What is the maximum gratuity payable?
The statutory limit is ₹20,00,000. Employers can pay more under their own policy.
Does gratuity apply to a company with fewer than 10 employees?
The law applies once you have 10 or more employees. Smaller companies can still pay gratuity as a policy, which many do to match market practice.
Related guides
- PF calculator 2026: employer and employee share
- Full and final settlement under the Labour Codes
- CTC calculator and salary structure template
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Talk to us about payrollA guide for employers, not legal advice. Estimates only; last checked 5 November 2026.