How is gratuity calculated in India, and when must an employer pay it?
Gratuity is 15 days' wages for each completed year: last drawn basic plus DA x 15 x years / 26. Worked example: wages of Rs 40,000 and 6 years give 40,000 x 15 x 6 / 26 = Rs 1,38,462; more than six months in the final year counts as a full year. An employer with 10 or more employees must pay it when someone leaves or retires after five years of continuous service, or earlier on death or disablement. Since the Labour Codes took effect on 21 November 2025, a fixed-term employee earns it after one year, and wages must be at least half of total pay, so a thin basic no longer shrinks it. The cap, and the tax-free limit for a private employee, is Rs 20 lakh.
The Ministry of Labour's 21 November 2025 release bringing the four Labour Codes into force, with the before-and-after table: mandatory appointment letters for all workers, and gratuity for fixed-term employees after one year.
A free calculator with the formula, worked examples and the rules: (last drawn salary x 15 x years) / 26 for employers covered by the Act, the five-year rule and its exceptions, the one-year rule for fixed-term staff, and the Rs 20 lakh cap and tax exemption.
A plain explainer of the Labour Codes' single definition of wages: basic pay, dearness allowance and retaining allowance must make up at least half of total pay, which raises the base on which PF and gratuity are worked out.
