Gratuity Calculator
Social Security Code 2020 · Effective Nov 21, 2025
Employee Type
Monthly CTC₹1,00,000
Last Drawn Wages (Basic+DA) ≥50% CTC
₹50,000
Years of Service10 yr
Eligible for Gratuity
Gratuity Payable
₹2,88,462
Years of service
—
Tax-free amount
—
Employee TypePermanent
Monthly Wages Used₹50,000
Wages % of CTC50%
Effective Years10
Formula(15/26)×W×Y
Raw Amount₹2,88,462
Statutory Cap₹20,00,000
Final Gratuity₹2,88,462
💰 Tax Treatment (Sec 10(10))
| Component | Amount | Status |
|---|
📜 Old Law vs New Law — Side by Side
| Rule | Payment of Gratuity Act 1972 Replaced | Social Security Code 2020 Active from Nov 21, 2025 |
|---|---|---|
| Permanent employee min service | 5 continuous years | 5 continuous years (unchanged) |
| Fixed-term employee eligibility | ❌ Not eligible | ✅ 1 year (pro-rata) |
| Wages definition / calculation base | Basic + DA (employer could manipulate) | ✅ Wages ≥ 50% of CTC; excess allowances added back |
| Formula (covered companies) | (15/26) × Salary × Years | (15/26) × Wages × Years (unchanged) |
| Formula (not covered) | (15/30) × Salary × Years | (15/30) × Wages × Years (unchanged) |
| Cap — Private sector | ₹20,00,000 | ₹20,00,000 (unchanged) |
| Cap — Central Govt employees | ₹20,00,000 | ✅ ₹25,00,000 (Jan 2024 DA hike) |
| Tax-exempt — Private (Sec 10(10)(ii)) | Up to ₹20 lakh | Up to ₹20 lakh (unchanged) |
| Tax-exempt — Govt (Sec 10(10)(i)) | Fully exempt | Fully exempt (unchanged) |
| Year rounding rule | >6 months = full year | >6 months = full year (unchanged) |
| Gig / Platform workers | ❌ Not covered | ✅ Covered (state rules being notified) |
| Payment deadline | 30 days from due date | 30 days from due date (unchanged) |
⚖️ Important: The Social Security Code 2020 is legally effective from Nov 21, 2025 across India. State-level subordinate rules are still being notified and may cause phased implementation. Consult a labour law professional for your specific situation.
On this page
What is Gratuity?
Gratuity is a lump-sum monetary benefit paid by an employer to an employee as a token of appreciation for the services rendered. It is governed by the Social Security Code 2020 (effective November 21, 2025), which replaced the Payment of Gratuity Act 1972. Gratuity is payable on retirement, resignation, death, or disablement — provided the employee has completed the minimum qualifying service.
Gratuity Formula
Gratuity Calculation Formula
Gratuity = (15 / 26) × Last Wages × Years of Service
15 = 15 working days | 26 = Working days in a month (for covered companies)
Last Wages = Basic + DA (must be ≥ 50% of CTC as per Code of Wages 2019)
For companies NOT covered by the Act: use 30 instead of 26
Last Wages = Basic + DA (must be ≥ 50% of CTC as per Code of Wages 2019)
For companies NOT covered by the Act: use 30 instead of 26
Key Changes under Social Security Code 2020
| Rule | Old Law | New Law (Nov 2025) |
|---|---|---|
| Permanent employee eligibility | 5 years | 5 years (unchanged) |
| Fixed-term employee eligibility | Not eligible | 1 year (new rule) |
| Calculation base (wages) | Basic + DA | Wages ≥ 50% of CTC |
| Cap (private sector) | ₹20 lakh | ₹20 lakh (unchanged) |
| Cap (government employees) | ₹20 lakh | ₹25 lakh |
| Tax exemption (private) | Up to ₹20L — Sec 10(10)(ii) | Up to ₹20L (unchanged) |
| Tax exemption (govt) | Fully exempt — Sec 10(10)(i) | Fully exempt (unchanged) |
How to Calculate Gratuity in India
Many employees are underpaid gratuity because the wrong wage base is used. Here are the correct four steps:
- Check eligibility: Permanent employees need 5 years of continuous service. Fixed-term contract employees need just 1 year under Social Security Code 2020.
- Determine the correct wage base: Use Basic + DA. Under Code of Wages 2019, this must be ≥ 50% of CTC. If your employer keeps basic below 50% CTC, gratuity must be calculated on 50% of CTC.
- Apply the right formula: Covered companies (10+ employees): (15÷26) × Monthly Wages × Years. Non-covered: (15÷30) × Monthly Wages × Years.
- Apply the statutory cap: ₹20 lakh for private sector, ₹25 lakh for central government employees.
Gratuity Calculation — Worked Example
📘 Private employee — ₹60,000/month basic, 8 years service, covered company
| Last Drawn Basic + DA | ₹60,000/month |
| Years of Service | 8 years |
| Formula | (15 ÷ 26) × 60,000 × 8 |
| Gratuity Payable | ₹2,76,923 |
| Tax Status | 100% tax-free (below ₹20L cap) |
Gratuity Rules for Private Sector Employees
- Minimum service: 5 years for permanent roles. Fixed-term workers qualify after 1 year — a major change under Social Security Code 2020.
- Wage base protection: Code of Wages 2019 mandates Basic + DA ≥ 50% of CTC. Employers who artificially kept basic low to reduce gratuity liability are now legally non-compliant.
- Cap: ₹20 lakh maximum. Amounts above ₹20L are taxable as salary income at your slab rate.
- Tax exemption: Up to ₹20 lakh exempt under Section 10(10)(ii) of the Income Tax Act.
- Payment deadline: Employer must pay within 30 days. Interest accrues on delayed payments.
Gratuity Eligibility After Resignation
Yes — gratuity is payable even on voluntary resignation after completing qualifying service. Gratuity is triggered by:
- Voluntary resignation after 5 years (permanent) or 1 year (fixed-term)
- Superannuation or retirement
- Death or permanent disability — no minimum service required
- Retrenchment or layoff
If your employer refuses payment, file a complaint with the Labour Commissioner under Section 8 of the Social Security Code. The employer is liable to pay gratuity plus compound interest on the delay.
Frequently Asked Questions
For permanent employees, the minimum qualifying service is 5 years. However, under the Social Security Code 2020, fixed-term employees are eligible after just 1 year of service. Also, if an employee dies or becomes permanently disabled, gratuity is payable regardless of the years of service. Some employers voluntarily pay gratuity before 5 years as an ex-gratia payment, but they are not legally obligated to.
For government employees (central, state, defence, local authorities): gratuity is fully exempt under Section 10(10)(i) — no tax at all. For private sector employees covered by the Gratuity Act: tax-exempt up to the least of (a) actual gratuity received, (b) ₹20 lakh, or (c) (15/26) × last salary × years of service — under Section 10(10)(ii). Any amount above ₹20L is taxable as salary income. For private sector employees not covered by the Act: exempt up to ₹20L under Section 10(10)(iii).
Many employers include gratuity as part of the CTC structure. The 4.81% is derived from the gratuity formula: (15/26) ÷ 12 months = 4.8077% ≈ 4.81% of monthly basic salary. So if your basic is ₹50,000/month, the gratuity accrual is approximately ₹2,404/month or ₹28,846/year, which the employer sets aside (though it is paid only on exit after qualifying service).
Under the Social Security Code 2020, gratuity must be paid within 30 days from the date it becomes payable. If the employer fails to pay within this period, they are liable to pay simple interest at the rate notified by the Central Government from the due date until actual payment. The employer must acknowledge the gratuity application within 15 days and determine the amount within 30 days.