= 50,000 × 15 ÷ 26 × 10 = ₹2,88,461
This formula applies to employers covered under the Payment of Gratuity Act (companies with 10+ employees). For uncovered employers, use 30 instead of 26.
What is Gratuity?
Gratuity is a statutory lump-sum payment made by an employer to an employee as a financial reward for long-term service. It is not a bonus or a performance-linked payment — it is a legal obligation under the Code on Social Security, 2020 (which replaced the Payment of Gratuity Act, 1972, effective November 21, 2025).
Think of gratuity as a loyalty reward: for every year you work for an employer, you earn 15 days of your basic salary as gratuity. Work for 10 years and you have earned 150 days of your basic salary sitting with your employer, payable when you leave.
Gratuity is paid as a lump sum when an employee leaves due to retirement, resignation (after 5+ years), death, or permanent disability. It is separate from your salary, PF withdrawal, or any other exit settlement.
Who is Eligible for Gratuity?
✅ Eligible
- •Permanent employees with 5+ years continuous service
- •Fixed-term employees after 1 year (new 2026 rule)
- •Employees retiring due to superannuation (age)
- •Employees resigning after 5 years
- •Nominee/heirs of employee who died (5-year rule waived)
- •Permanently disabled employees (5-year rule waived)
- •Employees in companies with 10+ employees
❌ Not Eligible
- •Employees with less than 5 years service (except fixed-term, death, disability)
- •Apprentices under the Apprentices Act
- •Employees dismissed for misconduct (partial forfeiture may apply)
- •Employees in companies with fewer than 10 employees (unless contract states otherwise)
- •Independent contractors (not on payroll)
The Gratuity Formula — Explained Simply
The denominator changes from 26 to 30. This gives a lower gratuity amount since 30 calendar days per month is used instead of 26 working days.
Why 15 and Why 26? (Most People Get This Wrong)
The numbers 15 and 26 in the gratuity formula confuse almost everyone. Here is the simple explanation:
Why 15 days?
The law rewards you with half a month's salary for each year of service. Half of 30 days = 15 days. So for every year you work, you earn 15 days of basic pay as gratuity. Work 10 years → earn 150 days of basic pay as gratuity.
Why 26 days?
A month has ~30 calendar days but only ~26 working days (30 days minus 4 Sundays). Dividing your monthly salary by 26 gives your daily wage on a working-day basis. Multiplying by 15 gives 15 working days of pay — slightly higher than 15/30 of monthly pay.
Step-by-Step Gratuity Calculation Examples — 6 Salary Ranges
All examples below assume: (1) employer is covered under the Gratuity Act, (2) no Dearness Allowance (common in private sector), so Basic = wage base. (3) years rounded per the 6-month rule.
= ₹12,500 × 0.5769 × 5
= ₹36,058
= ₹20,833 × 0.5769 × 7
= ₹84,134
= ₹33,333 × 0.5769 × 10
= ₹1,92,307
= ₹50,000 × 0.5769 × 10
= ₹2,88,461
= ₹83,333 × 0.5769 × 15
= ₹7,21,153
= ₹1,66,666 × 0.5769 × 20
= ₹19,23,076
Enter your basic salary and years of service to get your exact gratuity amount in seconds.
Use Free Gratuity Calculator →Employers NOT Covered Under the Gratuity Act
The Payment of Gratuity Act (now Code on Social Security) applies to establishments employing 10 or more employees at any time during the year. If your employer has fewer than 10 employees, the Act does not technically apply — but employers can still choose to pay gratuity voluntarily.
| Factor | Covered (10+ employees) | Not Covered (<10 employees) |
|---|---|---|
| Denominator in formula | 26 working days | 30 calendar days |
| Gratuity amount (same salary) | Higher (÷26) | Lower (÷30) |
| Legal obligation | Mandatory | Voluntary |
| Maximum limit | ₹20 lakh (private) | No statutory limit |
| Dispute resolution | Labour Commissioner | Civil court |
Rounding Rules — The 6-Month Rule Explained
Years of service are not always round numbers. Here is exactly how to count your service years for gratuity:
New Labour Code 2026 — What Changed for Gratuity
Fixed-term employees now eligible after 1 year
Previously: Only permanent employees eligible, and only after 5 years.
Now: Fixed-term/contract employees can claim pro-rata gratuity after completing just 1 year of continuous service. Massive change for India's gig and contract workforce.
Broader wage definition — Basic must be 50% of CTC
Previously: Employers could structure salaries with Basic at 30-40% of CTC, lowering the gratuity base.
Now: Basic wage must be at least 50% of total CTC. If excluded allowances exceed 50% of remuneration, the excess is added back to wages for gratuity calculation.
Faster F&F settlement — 30-day deadline tightened
Previously: Employers could delay gratuity payments with limited enforcement.
Now: Employers must determine gratuity within 30 days of it becoming payable. Delay attracts mandatory interest. F&F settlement timelines tightened in many cases.
| CTC | Old Basic (35%) | New Basic (50%) | Old Gratuity (10 yrs) | New Gratuity (10 yrs) |
|---|---|---|---|---|
| ₹6 LPA | ₹17,500 | ₹25,000 | ₹1,00,962 | ₹1,44,230 |
| ₹10 LPA | ₹29,167 | ₹41,667 | ₹1,68,270 | ₹2,40,385 |
| ₹15 LPA | ₹43,750 | ₹62,500 | ₹2,52,404 | ₹3,60,577 |
| ₹25 LPA | ₹72,917 | ₹1,04,167 | ₹4,20,673 | ₹6,00,962 |
* Approximate figures. Actual values depend on exact CTC structure and years of service.
Maximum Gratuity Limit in India 2026
Even if your formula-based gratuity exceeds ₹20 lakh, the employer is only legally obligated to pay ₹20 lakh (for private sector). Any additional amount paid is called ex-gratia — a voluntary payment above the statutory obligation. Employers can choose to pay more, but are not required to.
Is Gratuity Taxable in India?
| Employee Type | Tax Exemption | Taxable Amount |
|---|---|---|
| Government employees (Central, State, Local) | 100% fully exempt | Nil — no tax at all |
| Private employees (Covered under Gratuity Act) | Least of three amounts exempt | Amount exceeding exemption is taxed as salary |
| Private employees (Not covered under Act) | Least of three amounts exempt | Formula differs slightly (uses ½ month salary) |
For private sector employees — the "Least of Three" rule:
When Must the Employer Pay Gratuity?
Under the Code on Social Security, 2020, gratuity must be paid within 30 days from the date it becomes payable. For delays beyond 30 days, the employer is liable to pay simple interest on the outstanding amount.
| Scenario | When Gratuity is Payable |
|---|---|
| Resignation after 5 years | On the last working day |
| Retirement/Superannuation | On the date of retirement |
| Death of employee | Within 30 days to nominee/legal heir |
| Permanent disability | Within 30 days of claim application |
| Fixed-term contract end (1+ yr) | Within 30 days of contract termination (new rule) |
| Employer delay beyond 30 days | Simple interest payable on unpaid amount |
Frequently Asked Questions — Gratuity Calculation India 2026
What is the formula for gratuity calculation in India?
What is the minimum years of service for gratuity?
Does 4 years 8 months count as 5 years for gratuity?
Is gratuity calculated on basic salary or CTC?
What is the maximum gratuity in India 2026?
Is gratuity taxable in India?
What changed in gratuity rules under the new labour code 2026?
Can gratuity be forfeited?
Key Takeaways — Gratuity in India 2026
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