If you’re leaving a job after several years, you may be owed a gratuity payment — a statutory lump sum many employees don’t fully understand until they’re calculating it themselves. Here’s exactly how it works under India’s current rules, including the labour code changes that took effect in November 2025.
[Use the Gratuity Calculator above ↑] — enter your details to see your exact estimated payout.
Gratuity is a statutory lump-sum payment an employer makes to an employee in recognition of continuous service — not a bonus or performance-linked payout, but a legal obligation under the Payment of Gratuity Act, 1972, now operating alongside the Code on Social Security, 2020 (effective 21 November 2025).
For employers covered under the Act (any establishment with 10 or more employees):
Gratuity = (Last Drawn Basic + DA) × 15 × Years of Service ÷ 26
The “26” represents the assumed working days in a month; for employers not covered under the Act, the divisor is 30 instead. Note that the wage base is Basic + Dearness Allowance only — it excludes HRA, bonus, commission, and most other allowances.
A detail that trips up many people: if you’ve completed 4 full years and 240 working days in your 5th year (190 days if you work a 5-day week), courts generally treat this as a complete 5th year of service — meaning you may already be eligible even if you haven’t technically hit the 5-year mark on the calendar.
This is the change most existing gratuity content online hasn’t caught up with yet: under the Code on Social Security, 2020, your Basic + DA must equal at least 50% of your total CTC. If your company structures your salary with Basic below that threshold (common, to reduce PF and gratuity contributions), the excess allowance amount gets added back to your wage base for gratuity calculation purposes — which can meaningfully increase your payout compared to using your stated Basic + DA alone.
Last drawn Basic + DA: ₹50,000/month, service: 11 years (rounded from 10 years 7 months under the rounding rule):
Gratuity = (₹50,000 × 15 × 11) ÷ 26 = approximately ₹3,17,308
Since this is well under the ₹20 lakh exemption limit, the entire amount would be tax-free for a private-sector employee covered under the Act.
Is gratuity calculated on gross salary or basic salary?
Only on Basic + Dearness Allowance — not gross salary, HRA, bonus, or other allowances. The new 50% wages rule can adjust this base upward if your Basic+DA is unusually low relative to your CTC.
Can I get gratuity before 5 years of service?
Generally no, unless you’re a fixed-term employee (eligible after 1 year under the new labour code) or the 5-year requirement is waived due to death or disablement.
Is gratuity taxable?
Up to ₹20 lakh is tax-exempt for private-sector employees covered under the Act (fully exempt for government employees); any amount above that is taxed as salary income.
What changed under the new labour codes?
Three key changes effective 21 November 2025: fixed-term employees became eligible after just 1 year (previously excluded or requiring 5 years like regular employees), the wage base was broadened via the 50% CTC rule, and employers must now pay within 30 days or pay interest on delayed gratuity.
See also our in-hand salary calculator to understand your full CTC breakdown.
