Gratuity is a lump sum paid by your employer when you leave, retire or are laid off after years of service. The formula is simple once you know which salary counts and how years are rounded.
The formula
Gratuity = last drawn wages × 15 ÷ 26 × years of service. “Wages” mainly means basic pay + DA. Under the Labour Codes, if allowances excluded from wages are more than 50% of your pay, the excess is added back. A part-year of more than six months counts as a full year.
Examples
| Monthly wages | Service | Years counted | Gratuity |
|---|---|---|---|
| ₹30,000 | 10 years | 10 | ₹1,73,077 |
| ₹50,000 | 5 years 7 months | 6 | ₹1,73,077 |
| ₹1,00,000 | 20 years | 20 | ₹11,53,846 |
| ₹40,000 | 1 year (fixed-term) | 1 | ₹23,077 |
Who is eligible?
- Permanent employees: usually 5 years of continuous service.
- Fixed-term employees: 1 year, under the Labour Codes in force from 21 November 2025.
- Death or disablement: no minimum service.
Frequently asked questions
How is gratuity taxed?
For private-sector employees, up to ₹20 lakh is tax-free in a lifetime; anything above is taxed at your slab rate. Government employees’ gratuity is fully exempt.
What if my employer is not covered by the gratuity law?
The formula for tax purposes uses half a month’s average salary (of the last 10 months) for each completed year. The calculator has an option for this.
Related: Gratuity calculator · EPF calculator