Gratuity formula
Gratuity = 15 × last monthly wages × years of service ÷ 26
Wages = basic + DA. If your final year has more than 6 months, it counts as a full year.
With basic pay of ₹60,000 and 10 years 7 months of service, the service counts as 11 years, so gratuity = 15 × ₹60,000 × 11 ÷ 26 = ₹3,80,769.
If your employer isn't covered by the law (usually fewer than 10 employees), gratuity, if paid, is often half a month's average wages for each completed year: 15 × wages × completed years ÷ 30. For the same example that's ₹3,00,000.
What changed with the labour codes
The Code on Social Security, 2020 came into force on 21 November 2025 and replaced the Payment of Gratuity Act. Two changes matter most:
- Fixed-term employees now get gratuity after one year of continuous service, not five.
- Wages (basic plus DA) must be at least 50% of total pay, so for many people the salary used for gratuity has gone up.
Tax on gratuity
Gratuity is tax-free up to ₹20 lakh over your whole career for private-sector employees. Any amount above that is added to your income for the year and taxed at your slab rate. Government employees' gratuity is fully exempt.
Questions people ask
How many years do I need to get gratuity?
Five years of continuous service for permanent employees. Under the Code on Social Security, fixed-term employees qualify after one year. If an employee dies or is disabled, there is no minimum.
Does 4 years and 8 months count as 5 years?
For the rounding, a final part year of more than six months counts as a full year, so 4 years 8 months is counted as 5 years in the formula. Many employers and courts also treat it as meeting the 5-year requirement, but practice varies; check with your employer.
Why 15/26?
Gratuity is 15 days of wages for each year of service. A month is taken as 26 working days, so 15 days’ wages is 15/26 of a month’s salary. Employers not covered by the law usually use 15/30.
Is gratuity taxable?
For private-sector employees, gratuity is tax-free up to ₹20 lakh in total over your working life. Anything above that is added to your income. For government employees, it is fully tax-free.
Which salary is used?
Your last drawn basic pay plus dearness allowance. Under the new labour codes, basic plus DA should be at least half of your total pay, which raises gratuity for many people.
Method and sources
Covered employers: 15/26 × last wages × years, rounding a final part year over 6 months up. Not covered: 15/30 × wages × completed years. Eligibility after 5 years (1 year for fixed-term employees) under the Code on Social Security, 2020. Tax-free limit ₹20 lakh for non-government employees. Your employer's own policy may differ. How we calculate.
Last reviewed 22 Oct 2026 by the WealthFeedz team.