--- title: "Gratuity Calculator and Formula (2026) | LekhaHR" description: "Gratuity calculator on Code wages: the 15/26 formula, the 5-year and fixed-term 1-year rules, the ₹20,00,000 ceiling, tax-exempt part and payment date." canonical: https://lekhahr.in/tools/gratuity-calculator/ last_updated: 2026-10-06 --- > Design preview · sample data. Product previews and filled examples on this page use one sample company, Paiteq Technologies, and its people. They are not a LekhaHR customer, a testimonial or usage figures. Gratuity calculator · Code on Social Security · 15/26 formula · ₹20,00,000 ceiling # Gratuity calculator, **with the working shown.** Enter the last month's pay, the service and why the person is leaving. The calculator works out Code wages, checks eligibility, rounds the final year, applies 15/26 and the ceiling, and gives the tax-exempt part and the date to pay by, each with its reason. because since 21 Nov 2025 gratuity is on Code wages, and Basic + DA alone undercounts it. ## The short answer Gratuity is 15 days' wages for every completed year of service, with a month counted as 26 working days: last drawn monthly wages × 15 ÷ 26 × years. Since 21 Nov 2025 the wages are Code wages, not Basic + DA alone. A permanent employee needs 5 years of continuous service, a fixed-term employee 1 year; death or disablement needs none. The amount is capped at ₹20,00,000. On Code wages of ₹30,000 and 5 years, that is ₹86,538. ## Key facts - Gratuity = last drawn monthly wages × 15 ÷ 26 × completed years; a final part year beyond six months counts as a year. - Since 21 Nov 2025, the wages are Code wages: all pay except the listed exclusions, with excluded items above 50% of total remuneration added back. - Eligibility: 5 years of continuous service; 1 year under the contract for a fixed-term employee; no minimum on death or disablement. - The Code caps gratuity at ₹20,00,000, and it is paid within 30 days of becoming payable. ## One exit, worked out 15/26 formula · ceiling ₹20,00,000 · [checked by the LekhaHR team](https://lekhahr.in/editorial-policy/) 6 Oct 2026 Worked examples Eligible₹1,90,385 · 6 years - **01Total remuneration**: ₹79,600 because wage parts ₹55,000, excluded items ₹21,600 and employer PF ₹3,000, which counts in total remuneration for the 50% test - **02Added back to wages**: ₹0.00 because excluded items (₹24,600) stay within half of total remuneration (₹39,800.00) - **03Last drawn monthly wages**: ₹55,000.00 because Code wages are Basic + DA and allowances that are not excluded (₹55,000) - **04Continuous service**: 5 years 9 months 19 days because from 12 Jan 2021 to 30 Oct 2026, both days included - **05Service needed**: 5 years because the service meets the 5-year condition for continuous service. - **06Completed years for the formula**: 6 because the 9 months 19 days in the final year are beyond six months, so they count as a full year - **07One year's gratuity, 15/26**: ₹31,730.77 because 15 days' wages for each year, with a month counted as 26 working days: ₹55,000.00 × 15 ÷ 26 - **08Formula amount**: ₹1,90,384.62 because ₹31,730.77 × 6 completed years - **09Ceiling**: ₹20,00,000 because the Code caps gratuity at ₹20,00,000; this amount is under it - **10Gratuity payable**: ₹1,90,385 because the formula amount, rounded once to the rupee - **11Tax-exempt part**: ₹1,38,462 to ₹1,90,385 because the exempt part is the least of the gratuity paid, ₹20,00,000 across all employers in a lifetime, and 15/26 of last drawn salary × years; if the tax formula's salary is Basic + DA the lower figure applies. Deduct TDS on the lower until your CA confirms. - **12Pay by**: 29 Nov 2026 because gratuity is paid within 30 days of becoming payable, here the last working day; interest runs if it is late On Basic + DA alone this would be ₹1,38,462, ₹51,923 short. Since 21 Nov 2025 gratuity is on Code wages, so allowances that are not excluded, and any add-back, count. Not legal advice. The calculator covers gratuity under the Code on Social Security for an establishment it applies to, on the last full month's wages. It does not work out interest on late payment, a policy that pays more than the Code, or gratuity for central or state government employees, who have their own rules. It assumes monthly-rated pay: for a daily-rated worker gratuity is 15 days at the daily rate, a piece-rated worker's day is averaged over the last three months, and a seasonal establishment pays 7 days' wages for each season. A working journalist qualifies after 3 years instead of 5. ## What each input means - **Last drawn monthly wages**: The monthly rate, not the amount paid after loss of pay: a notice month with unpaid days is the classic underpayment. Code wages for the last full month: Basic, DA, retaining allowance and any allowance that is not excluded (special allowance counts), plus excluded items above half of total remuneration. Choose salary components to run that test. - **Excluded items**: HRA, conveyance, overtime, commission and the rest of the Code's list. They count only through the 50% add-back. Leave out reimbursements, and leave out variable pay and incentives that are not part of fixed monthly pay. - **In PF**: The employer's own PF and pension contribution counts in total remuneration for the 50% test, as an excluded item, so it can lift the add-back. - **Service**: From the date of joining to the last working day, both included. For years and months, enter whole months beyond the years. - **Employee type and reason**: Decide the minimum: 5 years for a permanent employee, 1 year under the contract for a fixed-term one, none on death or disablement. Termination includes retrenchment; a layoff does not end service, so it is not an exit. - **10 or more employees**: Untick it if the establishment has never had that many on any day of the last 12 months: the Code's gratuity does not apply, though a contract can still promise it. ## Official sources 1. [Code on Social Security, 2020, Chapter V (gratuity, s.53 to s.56)](https://www.labour.gov.in/static/uploads/2025/07/b0620548445580767b5c0d18c95c26f7.pdf) Ministry of Labour & Employment · in force 21 Nov 2025 official 2. [Additional FAQs on Labour Codes (as on 16.03.2026): gratuity on Code wages, fixed-term after one year](https://www.labour.gov.in/static/uploads/2026/03/a4ccf4c6d97c4f1f36a6d83f8c64213d.pdf) Ministry of Labour & Employment · in force 21 Nov 2025 official 3. [FAQs on Labour Codes (30.12.2025): the gratuity ceiling](https://www.labour.gov.in/static/uploads/2026/01/de4758d5bfeffc456d7de97a801891b0.pdf) Ministry of Labour & Employment · in force 21 Nov 2025 official 4. [Compliance Handbook for Employers (Feb 2026), p.26: gratuity within 30 days](https://www.labour.gov.in/static/uploads/2026/02/83978455025732b99b0165def80ab171.pdf) Ministry of Labour & Employment · in force 21 Nov 2025 official 5. [Code on Wages, 2019, s.2(y): wages and the 50% add-back](https://www.labour.gov.in/static/uploads/2025/06/c328da14bbb15fc4ad571dc33e7a4ab3.pdf) Ministry of Labour & Employment · in force 21 Nov 2025 official 6. [Income Tax Department: gratuity exemption](https://www.incometaxindia.gov.in/w/taxability-of-retirement-benefits) Income Tax Department · ceiling from 29 Mar 2018 official Each link opens the Ministry of Labour & Employment or Income Tax Department document · [checked by the LekhaHR team](https://lekhahr.in/editorial-policy/), reviewed 6 Oct 2026 No. 01 The formula ## What is the gratuity formula? Last drawn wages × 15 × completed years ÷ 26, on Code wages, up to ₹20,00,000. Gratuity = last drawn wages × 15 × completed years ÷ 26 ### Worked example - **Last drawn Code wages**: ₹30,000 - **Service**: 7 years 8 months → 8 - **₹30,000 × 15 × 8 ÷ 26**: ₹1,38,462 - **Within the ₹20,00,000 ceiling**: yes because 7 years and 8 months counts as 8: service beyond six months in the last year is a full year. ### What each part means - **Wages** are Code wages (Code on Social Security, s.2(88)): basic, DA, retaining allowance and any allowance not excluded (special allowance counts), plus excluded items above half of pay. - **15** is fifteen days’ wages for each year; **26** is the working days in a month. - **Completed years**: more than six months in the last year rounds up. - At most ₹20,00,000 under the Code; an employer may pay more by contract. - Five years’ continuous service; one year for a fixed-term employee, pro rata. Code on Social Security, 2020, s.53 · ceiling s.53(3) and MoLE FAQs (30 Dec 2025) · fixed term: MoLE Additional FAQs (16 Mar 2026), replies 14 and 19 No. 02 How to calculate gratuity ## Gratuity calculation formula: how is gratuity calculated in 2026? Last drawn monthly wages × 15 ÷ 26 × completed years, capped at ₹20,00,000. The wages are Code wages from 21 Nov 2025, and the years are the service rounded on one rule: a final part year beyond six months counts as a year. 1. **Check that the Code applies.** The establishment has had 10 or more employees on any day of the last 12 months. 2. **Check eligibility.** 5 years of continuous service for a permanent employee; 1 year under the contract for a fixed-term one; none on death or disablement. Test the service itself, before any rounding. 3. **Work out Code wages.** All pay except the listed exclusions, so Basic, DA, retaining allowance and special allowance count. If HRA, conveyance, the employer's PF and the other exclusions pass half of total remuneration, add the excess back. 4. **Count completed years.** Whole years of service, plus one more if the final part year is beyond six months. 5. **Multiply, cap, round.** Wages × 15 ÷ 26 × years, no more than ₹20,00,000, rounded once to the rupee. Pay within 30 days. ### Worked example: Paiteq's Asha Rao, if her last working day were 30 Oct 2026 1. **Find the last drawn wages.** Basic ₹40,000 and special allowance ₹15,000 are wages: ₹55,000. HRA ₹20,000, conveyance ₹1,600 and the employer's PF of ₹3,000 are excluded items, ₹24,600 out of ₹79,600 of total remuneration. That is under half (₹39,800), so nothing is added back: Code wages are ₹55,000 a month on a gross of ₹76,600. 2. **Count the service.** From 12 Jan 2021 to 30 Oct 2026, both days included: 5 years 9 months 19 days. That is at least 5 years of continuous service, so she is eligible on resignation. 3. **Round the final year.** The 9 months in the final year are beyond six months, so they count as a full year: 6 completed years. 4. **Apply 15/26.** ₹55,000 × 15 ÷ 26 = ₹31,730.77 for each year. Times 6 is ₹1,90,384.62. 5. **Check the ceiling and round.** ₹1,90,384.62 is under the ₹20,00,000 ceiling. Rounded once: ₹1,90,385, paid by 29 Nov 2026, 30 days after the last working day. On Basic + DA alone the same service would give ₹1,38,462, ₹51,923 less than the Code requires: the special allowance is wages. The calculator opens on this example. ### When nothing is due: Sanjay Mishra, 3 years 6 months 20 days Sanjay joined Paiteq on 6 Mar 2023 and resigned with a last working day of Fri 25 Sep 2026. His service is short of 5 years, so no gratuity is due, though his F&F still carries salary for the days worked and 6 days of earned leave encashed. [His full and final settlement, line by line](https://lekhahr.in/guides/full-and-final-settlement/) No. 03 Gratuity eligibility ## Gratuity eligibility: who qualifies, and after how long? A permanent employee qualifies after 5 years of continuous service, whether they resign, retire or are terminated. A fixed-term employee qualifies after 1 year under the contract. On death or disablement there is no minimum. The employer must also be covered: 10 or more employees on any day of the preceding 12 months. - **01Permanent employee**: 5 years because resignation, retirement, superannuation, termination and retrenchment all need 5 years of continuous service. - **02Fixed-term employee**: 1 year because the Ministry's FAQs (16 Mar 2026) read the Code as giving gratuity after 1 year under the contract, counted from its start, then pro rata. - **03Death or disablement**: no minimum because the Code waives the service condition, and a part year beyond six months still counts as a year in the amount. - **04Working journalist**: 3 years because the Code reads "5 years" as 3 for a working journalist. - **05The establishment**: 10 or more employees because the Code's gratuity applies once headcount reaches that on any day of the preceding 12 months, and keeps applying if it later falls. The edge case is a resignation just short of 5 years: the answer under "Is gratuity paid after 4.8 years, or only after 5?" below sets out the case law and when to take legal advice. Gratuity questions No. 04 The 15/26 formula ## What are 15 and 26 in the gratuity formula? 15 is the days' wages earned for each completed year. 26 is the working days in a month, so a month's wages ÷ 26 is one day's wage. Each year of service is therefore worth 15/26 of a month's wages, about 57.7%. **Gratuity on Code wages of ₹30,000 a month: ₹30,000 × 15 ÷ 26 = ₹17,307.69 a year** | Completed years | Gratuity | | --- | --- | | 5 | ₹86,538 | | 10 | ₹1,73,077 | | 15 | ₹2,59,615 | | 20 | ₹3,46,154 | | 25 | ₹4,32,692 | | 30 | ₹5,19,231 | A divisor of 30 instead of 26 would pay about 13% less; the Code fixes 26 for gratuity. Leave encashment is different: there the divisor is the policy's choice. [Work out leave encashment on 26, 30 or calendar days](https://lekhahr.in/tools/leave-encashment-calculator/) No. 05 The ₹20 lakh ceiling ## Who will get 20 lakhs gratuity? Anyone whose formula amount reaches ₹20,00,000, the most the Code requires. That depends on two numbers only, Code wages and years, so the table below shows the monthly Code wages at which each length of service hits the ceiling. **Monthly Code wages at which gratuity reaches ₹20,00,000** | Completed years | Code wages a month, at least | | --- | --- | | 10 | ₹3,46,667 | | 15 | ₹2,31,112 | | 20 | ₹1,73,334 | | 25 | ₹1,38,667 | | 30 | ₹1,15,556 | | 35 | ₹99,048 | An employer may pay more under a contract, award or agreement; the cap is on what the law requires, not on what may be paid. The ₹25 lakh figure in the news applies to central government employees under their own rules, not to private employers. No. 06 The rules behind it ## What is the new rule for gratuity calculation? From 21 Nov 2025 gratuity sits in the Code on Social Security. Three things changed: the wages are Code wages, service before 21 Nov 2025 is not split off (every year counts at the Code wages last drawn), and a fixed-term employee qualifies after 1 year. An exit before 21 Nov 2025 stays under the old Act, on Basic + DA. The formula, the 5-year rule and the ceiling carried over. Each rule below carries its date and source. - **01Who must pay**: 10 or more employees because the Code's gratuity applies to an establishment with 10 or more employees on any day of the preceding 12 months, and it keeps applying if headcount later falls. [In force; continued under the Code from 21 Nov 2025 · Code on Social Security, 2020, Chapter V (gratuity) and First Schedule (in force 21 Nov 2025) · checked by the LekhaHR team 30 Sep 2026](https://www.labour.gov.in/static/uploads/2025/07/b0620548445580767b5c0d18c95c26f7.pdf) - **02Permanent employee**: 5 years of service because gratuity on resignation, retirement or termination needs 5 years of continuous service; death or disablement waives it. [In force; continued under the Code from 21 Nov 2025 · Code on Social Security, 2020, s.53 · checked by the LekhaHR team 30 Sep 2026](https://www.labour.gov.in/static/uploads/2025/07/b0620548445580767b5c0d18c95c26f7.pdf) - **03Fixed-term employee**: 1 year under the contract because the Ministry's FAQs (16 Mar 2026) read the Code as giving a fixed-term employee gratuity after one year under the contract, counted from its start, and pro rata after that. Back-to-back short contracts with a break of a day or two are the arrangement most likely to be challenged; take legal advice before you rely on one. [Effective 21 Nov 2025 · Code on Social Security, 2020, s.53(1); Ministry of Labour & Employment, Additional FAQs on Labour Codes (as on 16.03.2026), replies 14 and 19 · checked by the LekhaHR team 6 Oct 2026](https://www.labour.gov.in/static/uploads/2026/03/a4ccf4c6d97c4f1f36a6d83f8c64213d.pdf) - **04Formula**: wages × 15/26 × years because 15 days' wages for each completed year, a month being 26 working days; a final part year beyond six months counts as a year. [In force; continued under the Code from 21 Nov 2025 · Code on Social Security, 2020, s.53 · checked by the LekhaHR team 30 Sep 2026](https://www.labour.gov.in/static/uploads/2025/07/b0620548445580767b5c0d18c95c26f7.pdf) - **05Wages**: last drawn Code wages because from 21 Nov 2025 gratuity is on wages as the Code defines them, and service before that date is not split off: every year counts at the Code wages last drawn. [Effective 21 Nov 2025 · Ministry of Labour & Employment, Additional FAQs on Labour Codes (as on 16.03.2026), replies 6, 11, 13 and 17; Code on Social Security, 2020, s.2(88) and s.53 · checked by the LekhaHR team 6 Oct 2026](https://www.labour.gov.in/static/uploads/2026/03/a4ccf4c6d97c4f1f36a6d83f8c64213d.pdf) - **06Ceiling**: ₹20,00,000 because the Code caps what the law requires; an employer may pay more by contract or award. [Effective 21 Nov 2025 · Code on Social Security, 2020, s.53(3) (amount notified by the Central Government); Ministry of Labour & Employment, FAQs on Labour Codes (30.12.2025), Q12 · checked by the LekhaHR team 6 Oct 2026](https://www.labour.gov.in/static/uploads/2026/01/de4758d5bfeffc456d7de97a801891b0.pdf) - **07Payment**: within 30 days because gratuity is paid within 30 days of becoming payable, without waiting for a claim; late payment carries simple interest. [Effective 21 Nov 2025 · Code on Social Security, 2020, Chapter V (gratuity); Ministry of Labour & Employment, Compliance Handbook for Employers (Feb 2026), p.26 · checked by the LekhaHR team 30 Sep 2026](https://www.labour.gov.in/static/uploads/2026/02/83978455025732b99b0165def80ab171.pdf) - **08Income-tax exemption**: up to ₹20,00,000, lifetime because the exempt part is the least of the gratuity paid, ₹20,00,000 across all employers in a lifetime, and 15/26 of last drawn salary × years, where the Income Tax Department reads salary as Basic + DA. Deduct TDS on the lower, Basic + DA, figure until your CA confirms. [Effective 29 Mar 2018 · CBDT Notification No. 16/2019 dated 8 Mar 2019; carried into the Income-tax Act, 2025 (in force 1 Apr 2026) · checked by the LekhaHR team 30 Sep 2026](https://www.incometaxindia.gov.in/w/taxability-of-retirement-benefits) No. 07 What changes in LekhaHR ## How does payroll software work out gratuity at an exit? In LekhaHR, the date of joining is recorded when someone is onboarded, and each salary component is marked once as wages or excluded. At the exit, the F&F statement reads the service and the last month's Code wages, and puts gratuity on its own line with the working and the pay-by date. LekhaHR prepares the figures; you pay them. - **01Date of joining**: recorded at onboarding because continuous service starts there, and a wrong date moves eligibility. - **02Code wages**: from the salary structure because each component is marked as wages or excluded once, and the 50% test runs every month. - **03F&F statement**: gratuity on its own line because it has its own 30-day clock, separate from the final wages. The joining date comes from [onboarding, where each new hire's record starts](https://lekhahr.in/employee-onboarding-software/); the exit runs through [LekhaHR payroll and its F&F statement](https://lekhahr.in/payroll-software/). Leave encashed at the same exit follows the [leave rules under the OSH Code](https://lekhahr.in/guides/leave-rules/). [Full and final settlement, step by step](https://lekhahr.in/guides/full-and-final-settlement/) No. 08 Questions ## Gratuity questions, answered with the numbers. ### How is gratuity calculated in 2026? Last drawn monthly wages × 15 ÷ 26 × completed years of service, capped at ₹20,00,000. Since 21 Nov 2025 the wages are Code wages: Basic, DA and every allowance that is not excluded, plus excluded items such as HRA above half of total remuneration. A final part year beyond six months counts as a full year. On Code wages of ₹55,000 and 5 years 9 months 19 days of service, that is ₹1,90,385. ### What are 15 and 26 in the gratuity formula? 15 is the number of days' wages paid for each completed year of service. 26 is the number of working days in a month, so monthly wages ÷ 26 is one day's wage. Together, 15/26 of a month's wages, about 57.7%, is paid for each year. ### Who will get 20 lakhs gratuity? Anyone whose formula amount reaches the ₹20,00,000 ceiling. With 20 years of service that takes Code wages of about ₹1,73,334 a month; with 30 years, about ₹1,15,556. Above that the Code pays ₹20,00,000; an employer may pay more by contract. The higher figure in the news is for central government employees, not private employers. ### What is the new rule for gratuity calculation? Three changes came with the Code on Social Security from 21 Nov 2025. Gratuity is worked on Code wages, so special allowance counts and excluded items above half of pay are added back. Service before 21 Nov 2025 is not split off: someone who joined years earlier and leaves after it gets every year on last drawn Code wages (Ministry FAQs, 16 Mar 2026); an exit before 21 Nov 2025 stays under the old Act, on Basic + DA. A fixed-term employee qualifies after 1 year under the contract instead of 5. The 15/26 formula, the 5-year rule for permanent staff and the ₹20,00,000 ceiling stay. ### Is gratuity paid after 4.8 years, or only after 5? Not on resignation, on the Code's text: a permanent employee needs 5 years of continuous service, and the six-month rounding only applies to the years in the formula once someone is eligible. So 4 years 7 months gets nothing on resignation. Some High Courts have treated four years plus 240 days worked in the fifth year as five years. That is roughly 9 to 10 months on a six-day week, or about 11 months on a five-day week, so seven months is short even on that reading and 4.8 years is at the edge. Where an exit falls a few weeks short of five years, take legal advice before you settle the F&F. On death or disablement there is no minimum, so 4 years 7 months counts as 5 years in the formula. ### Is gratuity calculated on basic salary or CTC? Neither, and never on CTC. Since 21 Nov 2025 it is on Code wages: Basic, DA, retaining allowance and allowances that are not excluded, with HRA, conveyance and the other exclusions added back where they pass half of total remuneration. Employer PF and gratuity itself are not wages. For a salary of ₹76,600 with Basic ₹40,000, Code wages are ₹55,000. ### Is gratuity taxable? Up to a limit it is exempt. The exempt part is the least of the gratuity paid, ₹20,00,000 and 15/26 of last drawn salary × years. ₹20,00,000 is a lifetime limit across all employers, so exemptions claimed on an earlier job's gratuity count against it. The Income Tax Department reads salary as Basic + DA, which gives a lower figure than Code wages: for Paiteq's Asha Rao the exempt part is ₹1,38,462 to ₹1,90,385. Deduct TDS on the lower figure until your CA confirms. Government employees' gratuity is fully exempt. ### When must gratuity be paid? Within 30 days of the date it becomes payable, which is the date service ends. The employer works it out and pays without waiting for a claim. If it is paid late, simple interest is due from the date it became payable. ### Do fixed-term employees get gratuity? The Ministry's FAQs (16 Mar 2026) read the Code as giving a fixed-term employee gratuity after 1 year under the contract, counted from its start, and pro rata for the years served after that. Back-to-back short contracts with a break of a day or two are the arrangement most likely to be challenged; take legal advice before you rely on one. Contract labour supplied by a contractor are the contractor's employees, and their gratuity runs through the contractor. ### Can gratuity be held back for no-dues, notice shortfall or an unreturned laptop? No. Gratuity can be forfeited only where service is terminated for damage or loss the person caused (to the extent of it) or for riotous conduct, violence or an offence of moral turpitude, and the termination order has to say so. Notice-pay recovery and unreturned assets are settled from the final wages, not from gratuity. Gratuity is also on its own 30-day clock, while final wages are due within 2 working days. ### Is gratuity part of CTC? Many offer letters show gratuity as about 4.81% of Basic (15 ÷ 26 ÷ 12) inside CTC. It is a contingent benefit: someone who leaves before 5 years does not receive it, so say that in the offer letter or expect a dispute at exit. Since 21 Nov 2025 the provision should be on Code wages, not Basic; a CTC line still on Basic understates the cost. ### Who gets the gratuity if an employee dies in service? The nominee. Without a nomination it goes to the legal heirs after paperwork that can take months, and a minor's share is deposited with the authority the government notifies. Collect nominations at onboarding (Form F under the old Act). For employersLekhaHR is HR and payroll software for small Indian teams. [See payroll →](https://lekhahr.in/payroll-software/)