Quick answer: Gratuity = 15 × last month’s wages × years of service ÷ 26. Wages here mean basic pay + DA. Under the new Labour Codes, if basic + DA is less than half of total pay, the shortfall is added back.
- Permanent employees need 5 years of continuous service.
- Fixed-term employees qualify after 1 year.
- On death or disablement there is no minimum.
- A final part-year of more than 6 months counts as a full year.
Download the free gratuity calculator in Excel below. It works out eligibility, the gratuity amount and the tax-free part.
Key takeaways
- Updated for the Code on Social Security, 2020, in force from 21 November 2025.
- Applies the 50% wage rule, the 1-year rule for fixed-term staff and the 6-month rounding.
- Shows the tax-free and taxable parts. The private-sector exemption is up to ₹20 lakh in a lifetime.
- A second sheet works out gratuity liability for all employees at a date, for employers and year-end provisions.
Gratuity formula in 2026
Gratuity = 15 × W × N ÷ 26
- W = last month’s wages (basic + DA, raised to at least 50% of total pay if needed)
- N = years of service, counting a final part-year of more than 6 months as a full year
- 15 = 15 days’ wages for each year
- 26 = working days in a month
What changed with the new Labour Codes
| Rule | Before 21 Nov 2025 | From 21 Nov 2025 |
|---|---|---|
| Fixed-term employees | 5 years | 1 year (pro-rata) |
| Permanent employees | 5 years | 5 years (no change) |
| Wages for gratuity | Basic + DA | Basic + DA, but allowances above 50% of total pay are added back |
| Death / disablement | No minimum | No minimum (no change) |
Worked example
Ravinder joined on 11 March 2019 and leaves on 30 November 2026. His basic pay is ₹28,000, he gets no DA, and his total monthly pay is ₹70,000.
- Service: 7 years 8 months 19 days. The last part-year is more than 6 months, so 8 years count.
- Wages: basic + DA is ₹28,000. Half of total pay is ₹35,000, so ₹7,000 is added back. Wages for gratuity = ₹35,000.
- Gratuity: 15 × 35,000 × 8 ÷ 26 = ₹1,61,538.
Under the old rule, with ₹28,000 wages, it would have been ₹1,29,231. The 50% rule adds ₹32,307 here.
Is gratuity taxable?
- Government employees: fully tax-free.
- Private-sector employees: tax-free up to ₹20 lakh in a lifetime. The calculator subtracts any exemption you used with an earlier employer and shows the taxable balance.
- Gratuity paid by the employer under the law is also capped at ₹20 lakh. The calculator applies that cap.
Gratuity liability for all employees
Employers need the total gratuity they would owe if everyone left on a date, for example 31 March for the balance sheet. The second sheet lists up to 50 employees. For each it shows years counted and eligibility, the gratuity payable now, and the accrued liability.
Running payroll every month? XplorePay – Payroll & Compliance in Excel handles up to 100 employees. It works out PF with the new ₹25,000 ceiling, ESI, professional tax, bonus and gratuity provision, and prints payslips.
Download the free Gratuity Calculator 2026
There are two sheets: Gratuity Calculator for one employee and Staff Gratuity Liability for employers. Fill in the yellow cells.
FAQs
Is gratuity payable before 5 years?
Yes in three cases: fixed-term employees after 1 year, and any employee on death or disablement. Otherwise permanent employees need 5 years of continuous service. Some courts have counted 4 years 240 days as 5 years; ask your employer or a lawyer if you are close.
Why divide by 26?
The law treats a month as 26 working days, so 15 days’ wages = monthly wages × 15 ÷ 26.
Does gratuity apply to every employer?
The law applies to establishments with 10 or more employees. A smaller employer may still pay gratuity under its own policy.
Which wages are used – basic or gross?
Basic + DA (plus retaining allowance if any). Under the Labour Codes, if allowances are more than half of total pay, the excess is added back to wages.
Is this calculator legal advice?
No. It applies the general rules. Seasonal establishments, special agreements and disputes differ, so check with your employer or CA before relying on the figure.
More free templates
- PF Calculation 2026 – ₹25,000 Wage Ceiling
- Attendance Sheet with Salary Calculation
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