India gratuity at a glance
The headline rules did not change when the Code on Social Security replaced the Payment of Gratuity Act, but the legal source did…
The headline rules did not change when the Code on Social Security 2020 replaced the Payment of Gratuity Act 1972, but the legal source did. Section 53 of the Code now sets the rules, and the Income-tax Act 2025 sets the tax exemption.
| Item | Rule | Source |
|---|---|---|
| Eligibility | 5 years of continuous service on resignation, retirement or superannuation. No minimum on death or disablement. 1 year for fixed-term employees. | Code on Social Security s.53(1); Labour Ministry FAQ |
| Formula | Wages × 15 ÷ 26 × completed years. A part over 6 months counts as a year. 7 days per season for seasonal establishments. | s.53(2), Explanation 3 |
| Wages | Basic + DA + retaining allowance, with excluded pay above 50% of total added back. | s.2(88) |
| Ceiling | Rs 20,00,000, as notified by the Central Government. | s.53(3); notification S.O. 1420(E) of 2018 |
| Tax exemption | Least of amount received, Rs 20,00,000 and 15 / 26 × salary × years. Fully exempt for Government employees. | Income-tax Act 2025, s.19 |
For example, 10 years at Rs 50,000 basic plus DA gives 50,000 × 15 ÷ 26 × 10 = Rs 2,88,461.54, well under the ceiling and fully within the tax exemption.
What changed with the Labour Codes
The Government made the four Labour Codes effective from 21 November 2025, and the Code on Social Security 2020 is the one that covers gratuity…
The Government made the four Labour Codes effective from 21 November 2025, and the Code on Social Security 2020 is the one that covers gratuity. Four points matter for the calculation:
- Repeal. Section 164 of the Code repeals the Payment of Gratuity Act 1972, with a savings clause that keeps earlier notifications alive until they are replaced.
- Fixed-term employees. They become eligible after one year of service rather than five, with gratuity paid pro rata.
- Wages. The Code's wage definition applies to gratuity from 21 November 2025, including the rule that excluded pay above 50 percent of total remuneration is added back. The Labour Ministry's FAQ says gratuity, ESI and other retirement benefits are not counted when testing the 50 percent limit.
- Tax law. The Income-tax Act 2025 still words its gratuity entry by reference to the 1972 Act, and the Income Tax Department's guidance continues to use the 15 / 26 formula and the Rs 20 lakh limit.
Rules made under the Code can refine these details, so treat this page as an estimate and confirm the figure with your employer.
Official sources
4 official sources
Figures on this page follow these official texts. Rules were last checked in September 2026.
- Code on Social Security, 2020 (Act No. 36 of 2020), sections 2(88), 53, 54 and 164, Ministry of Labour and Employment: labour.gov.in, Code on Social Security, 2020 (PDF)
- PIB, Government makes the four Labour Codes effective from 21 November 2025: pib.gov.in, press release
- Ministry of Labour and Employment, Additional FAQs on Labour Codes (as on 16 March 2026): labour.gov.in, Additional FAQs (PDF)
- Income-tax Act, 2025, section 19 (deductions from salaries) and the Income Tax Department's guidance on retirement benefits: incometaxindia.gov.in, retirement benefits
FAQ
How is gratuity calculated in India?
For a monthly-paid employee, gratuity is last drawn wages x 15 / 26 x completed years of service, where wages are basic pay plus dearness allowance. Fifteen days' wages is worked out by dividing the monthly wage by 26 and multiplying by 15. A part of a year longer than six months counts as a full year. For example, 10 years at Rs 50,000 basic plus DA is 50,000 x 15 / 26 x 10 = Rs 2,88,461.54. For an employee of a seasonal establishment the rate is 7 days' wages for each season instead of 15.
Is the Payment of Gratuity Act 1972 still in force?
Check the current position with your employer, because it has changed. The four Labour Codes were made effective from 21 November 2025, and the Code on Social Security 2020 lists the Payment of Gratuity Act 1972 among the laws it repeals (section 164). Gratuity is now governed by section 53 of the Code, which carries over the same headline rules: five years of continuous service, 15 days' wages for each completed year or part over six months, and the 15 / 26 method for monthly-rated employees. The Labour Ministry's FAQ says gratuity paid on or after 21 November 2025 follows the Code and the wages last drawn. The Income-tax Act 2025 still refers to the 1972 Act in its gratuity entry, so tax guidance continues to use the same formula.
How many years of service do I need to get gratuity?
Section 53(1) of the Code on Social Security requires continuous service of not less than five years when you retire, resign or reach superannuation. Five years is not needed on death or disablement. A fixed-term employee becomes eligible after one year under the Code, with gratuity paid pro rata, and the Labour Ministry's FAQ confirms the one-year rule. Some Madras High Court rulings have treated 4 years and 240 days of actual work as completing five years, but that reading is contested and this calculator applies it only if you tick the option.
Does a part of a year count towards gratuity?
Yes, if it is more than six months. Section 53(2) pays gratuity for every completed year of service or part thereof in excess of six months. Five years and seven months counts as six years. Exactly six months, or less, is dropped. This rounding decides the amount. It does not shorten the five-year eligibility test, so 4 years and 7 months does not qualify for gratuity on resignation or retirement.
Which salary counts as wages for gratuity?
Wages means basic pay, dearness allowance and any retaining allowance (section 2(88) of the Code on Social Security). House rent allowance, conveyance allowance, bonus, overtime and commission are excluded, but if those excluded payments exceed one-half of total remuneration, the excess is added back to wages. The Labour Ministry's FAQ says the new wage definition applies to gratuity from 21 November 2025. Enter your other monthly pay in the calculator and it applies this 50 percent test for you.
Is there a maximum limit on gratuity?
Yes. Section 53(3) caps gratuity at an amount notified by the Central Government, and the notified figure is Rs 20,00,000 (notification S.O. 1420(E) of 29 March 2018), which the Code's savings clause carries forward until it is replaced. Employers can pay more under their own policy or contract, but the excess is not statutory gratuity and is taxable. Because this figure is set by notification, check whether a new one has been issued.
Is gratuity taxable in India?
Gratuity received on retirement, resignation, disablement or death is tax exempt up to a limit. Under section 19 of the Income-tax Act 2025 (in force from 1 April 2026, replacing section 10(10) of the 1961 Act), for an employee covered by the gratuity law the exemption is the least of the gratuity actually received, Rs 20,00,000, and 15 / 26 x last drawn salary (basic plus DA) x completed years with a part over six months counted as a year. Central and State Government employees are fully exempt. Gratuity received during service is fully taxable, and any amount above the exemption is taxed as salary at your slab rate.
What if my employer is not covered by the Act?
If your employer falls outside the gratuity law (for example, a small establishment below the employee threshold), the Code does not oblige it to pay gratuity, but many pay it under their own scheme. For tax, the exemption is the least of the gratuity received, Rs 20,00,000, and half a month's average salary for each completed year of service. Average salary is taken over the ten months before the month you leave, and only completed years count. The calculator uses this formula when you choose not covered, and your employer's scheme decides eligibility.