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Gratuity Payable and Tax Exemption Calculator — 2026

Reviewed by Finin2min Editorial Desk · Last reviewed 15 October 2026

Calculate gratuity entitlement and income-tax exemption under the post-November 2025 framework.

Calculate payable gratuity and tax exemption

Result

Entitlement and tax exemption are separate.
Indicative payable gratuity—
Tax exemption—
Taxable gratuity—
Service used—
Remaining ₹20 lakh ceiling—
Income-tax Act, 2025 note: The gratuity exemption discussed above is cited as Section 10(10) for FY 2025-26 and earlier. Under the Income-tax Act, 2025 (effective FY 2026-27), Section 10 exemptions move out of numbered sections into Schedule II of the new Act — so for FY 2026-27 onward, cite Schedule II rather than "Section 10(10)". Section numbering note: This page uses Income-tax Act, 1961 terminology for AY 2026-27 references. If applying the Income-tax Act, 2025 for a later year, verify the corresponding provision and exact wording from the official Gazette or Income Tax Department before citing a section number.

How This Is Calculated

For employees covered by section 53 of the Code on Social Security, 2020, which governs gratuity that becomes payable on or after 21 November 2025, gratuity is calculated as 15/26 × last drawn monthly wages × years of service for a monthly-rated employee. A part of a year counts as a full year only when it is more than six months. Gratuity is payable on resignation or retirement after five years of continuous service; the five-year condition does not apply on death, disablement or expiry of a fixed-term contract (a directly engaged fixed-term employee needs one year of service under the contract, and fixed-term and deceased employees are paid pro rata). The tax exemption under Section 10(10) is capped at ₹20,00,000 over an employee's lifetime, tracked across all employers.

Who can qualify for gratuity?

SituationEligibility testKeep on file
Superannuation, retirement or resignationFive years of continuous service (three years for working journalists).Joining and leaving dates, evidence of continuous service, proof the employer is covered.
Death or disablementThe five-year condition is not required. On death the gratuity is paid to the nominee or, if there is none, to the legal heirs.Death or disablement records, nomination or legal-heir documents, service dates.
Directly engaged fixed-term employee whose contract has endedOne year of service under the contract, according to the Ministry’s FAQs; paid pro rata.Contract letter with start and end dates, proof that the engagement was direct.
Worker engaged through a contractorNot fixed-term employment. The Ministry’s FAQs say the contractor, as employer, pays gratuity after five years of continuous service.Contractor and principal-employer records, wage and service history.
Seasonal establishment or piece-rated employeeSpecial rules apply: seven days’ wages for each season; for piece-rated employees, daily wages averaged over the three months before termination, excluding overtime.Season records and wage registers.

How the amount is worked out

For an ordinary event the broad formula is last-drawn monthly wages × 15 ÷ 26 × years counted. A part-year is counted only if it is more than six months, so seven years and exactly six months count as seven years, while seven years and seven months count as eight.

Worked example. With monthly wages of ₹52,000 the 15-day amount for one year is ₹52,000 × 15 ÷ 26 = ₹30,000. Seven years and seven months of service count as eight years: ₹30,000 × 8 = ₹2,40,000. Seven years and exactly six months count as seven years: ₹2,10,000. Both figures are before any ceiling or better contractual terms.

Fixed-term example. A directly engaged fixed-term employee with wages of ₹52,000 who completes a contract of one year and six months is paid pro rata for the exact period: ₹30,000 × 1.5 = ₹45,000. The calculator uses the exact period for fixed-term expiry and for death, and the ordinary rounding for disablement and for retirement or resignation.

Which wage figure? Use wages as defined in section 2(88) of the Code on Social Security, 2020: basic pay, dearness allowance and retaining allowance, plus any amount added back where other payments exceed 50% of total remuneration. The add-back is the excess over 50% of total remuneration, not 50% of cost to company. Take the figure from payroll’s statutory wage determination instead of estimating it from gross pay.

Ceiling, better terms and payment time. The maximum statutory gratuity is the amount notified by the Central Government, which the Ministry’s FAQs state is currently ₹20 lakh; a better term in an award, agreement or contract continues to apply. The employer must pay within 30 days of the date the gratuity becomes payable.

Tax is separate. The amount payable by the employer and the amount exempt from income tax are different computations. The exemption depends on the employee category, the year of receipt and any exemption already used with earlier employers.

Frequently Asked Questions

What is the formula for gratuity under the Code on Social Security? ▼
For a monthly-rated employee, gratuity = 15/26 × last-drawn monthly wages × completed years of service, where wages are as defined in section 2(88) of the Code on Social Security, 2020. A part of a year counts as a full year only if it is more than six months. Section 53 of the Code applies to gratuity that becomes payable on or after 21 November 2025; it replaced the Payment of Gratuity Act, 1972.
What is the minimum service required to get gratuity? ▼
Generally five years of continuous service on superannuation, retirement or resignation. The five-year condition does not apply on death, disablement or expiry of a fixed-term employment contract. For a directly engaged fixed-term employee the Ministry of Labour and Employment’s FAQs say one year of service under the contract is needed, and gratuity is paid pro rata. An employee engaged through a contractor follows the ordinary five-year rule.
What is the maximum tax-exempt gratuity amount? ▼
Under Section 10(10), the tax-exempt gratuity limit is ₹20,00,000 over an employee's entire working life, across all employers — not per employer. Any gratuity exemption already claimed with a previous employer reduces what remains available now.
Is gratuity fully tax-free for government employees? ▼
Yes. Gratuity received by central and state government employees is fully exempt from tax under Section 10(10)(i), with no ₹20 lakh cap.
What happens if I resign before 5 years of service? ▼
You are generally not eligible for statutory gratuity under the Code on Social Security if you resign or retire with less than five years of continuous service (death, disablement and expiry of a fixed-term contract are exceptions). Some employers may still pay an ex-gratia amount at their discretion, taxed differently from statutory gratuity.
How is gratuity calculated for a fixed-term employee? ▼
A directly engaged fixed-term employee who completes one year of service under the contract is eligible on expiry of the contract, and the Code provides for payment on a pro rata basis. The calculator therefore uses the exact period of service in years and months instead of rounding. Check that the engagement is direct: employees supplied by a contractor are not treated as fixed-term employment.
Which wages are used to calculate gratuity? ▼
Wages as defined in section 2(88) of the Code on Social Security, 2020: basic pay, dearness allowance and retaining allowance, plus any amount that has to be added back when other payments exceed 50% of total remuneration. The Ministry has said that this definition applies to gratuity from 21 November 2025. Enter the monthly figure from payroll’s statutory wage determination, not gross pay or cost to company.
How soon must gratuity be paid? ▼
The Ministry’s compliance handbook states that the employer must pay gratuity within 30 days from the date it becomes payable (section 56 of the Code), and that every employee who has completed one year of service must make a nomination (section 55).
Is there a ceiling on gratuity? ▼
The maximum gratuity is the amount notified by the Central Government, which the Ministry’s FAQs state is currently ₹20 lakh. A better gratuity under an award, agreement or contract with the employer continues to apply.

Source and review trail

Use the current official instrument, portal or regulator publication before acting.

Official starting point
www.labour.gov.in

Related guidance: Gratuity Tax Exemption: Section 10(10), Not 10(10C) | Finin2min · Tax on Gratuity Above the Exemption Limit | Finin2min · Fixed-Term Employee Gratuity: One-Year Rule and Pro-Rata | Finin2min · How Gratuity Is Calculated in India After Labour Codes | Finin2min

Post-21 November 2025 gratuity control

For a gratuity event on or after 21 November 2025, entitlement should be analysed under section 53 of the Code on Social Security, 2020 and the Social Security (Central) Rules, 2026 where the Central Government is appropriate. The Code retains 15 days’ wages for each completed year or part over six months, and explains the monthly-rated 15/26 convention. Fixed-term employees have special eligibility/pro-rata rules; the Ministry’s 2026 FAQs state that the new wage framework applies from 21 November 2025.

Separate statutory entitlement from income-tax exemption. The Ministry’s current FAQ states the notified maximum statutory gratuity at ₹20 lakh, subject to better contractual/award terms; tax exemption has its own conditions. This calculator is an estimate and should not override a more beneficial award, agreement or contract.

Before you calculate

  • Use the monthly wages from payroll’s statutory wage determination, not gross pay or cost to company.
  • Count service from the date of joining to the last working day; for ordinary events a part-year counts only above six months.
  • For a fixed-term employee, use the contract start and end dates and confirm the engagement was direct.
  • Enter any gratuity exemption already claimed with an earlier employer.

Reading the result

  • The payable figure is a statutory estimate; an award, agreement or contract can give more.
  • The tax exemption is a separate computation under the Income-tax Act and depends on the year of receipt.
  • Money received while employment continues is generally taxable.
  • Special cases (seasonal, piece-rated, contractor-supplied staff) need a separate check against the Code and the Ministry’s FAQs.

Primary-source starting points

Reviewed 15 October 2026. Always test later amendments, corrigenda and portal implementation before a live filing or transaction.

Methodology, assumptions and sources

Scope: Computes gratuity payable under section 53 of the Code on Social Security, 2020 (which replaced the Payment of Gratuity Act, 1972 for gratuity that becomes payable from 21 November 2025), and the resulting income-tax exemption under Section 10(10), based on whether the employer is covered by the statutory gratuity law.

Calculation logic

  1. Gratuity (employers covered by the Code) = (Last drawn monthly wages × 15 days × years of service) ÷ 26, where 'wages' are determined under section 2(88) of the Code (basic pay, dearness allowance, retaining allowance and any amount added back under the 50% rule), and a part of a year counts as a full year only when it is more than six months. For a fixed-term employee and for a deceased employee the exact period of service is used (pro rata) instead of rounding; for disablement the ordinary rounding applies.
  2. Gratuity (employers NOT covered by the statutory law, computed per employer policy or contract) = (Last drawn salary × 15 days × completed years of service) ÷ 30, using a 30-day divisor instead of 26 — this half-month convention differs from the formula for covered employers, and the calculator applies the one that matches the coverage status you select.
  3. Tax exemption under Section 10(10): for a government employee, gratuity received is fully exempt; for a non-government employee covered by the statutory gratuity law, exemption = lower of (gratuity received, ₹20 lakh currently prescribed lifetime limit, or the amount computed under the statutory formula); for a non-government employee not covered, a similar three-way lower-of test applies using the 30-day-divisor formula and half-month-average-salary basis instead.

Inputs and assumptions

Exclusions and edge cases

Sources

Review status: reviewed and approved by CA Nikhil Gupta on 6 July 2026.

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