Gratuity Calculator 2026 — New Labour Code Rules
Calculate your gratuity entitlement under India's new Labour Code. Fixed-term employees now qualify after 1 year. Tax exemption up to ₹20 lakh.
Decimal accepted — e.g. 4.5 = 4 years 6 months
Most companies with 10+ employees are covered by the Act
✓ Eligible for Gratuity
Gratuity Amount
₹1.44 L
₹1,44,231 total
Up to ₹20L ceiling
—
Earned every month
Gratuity Formula & New Labour Code Rules
Gratuity is a statutory benefit paid by employers to employees as a token of appreciation for long service. It is governed by the Payment of Gratuity Act, 1972, now superseded by the Code on Social Security, 2020 (effective November 2025).
The Formula
For Act-covered companies: Gratuity = (15 × Basic+DA × Years) / 26
For non-covered companies: Gratuity = (15 × Basic+DA × Years) / 30
Note: If service > 6 months in final year, round up to next year
What Changed Under New Labour Code
- Fixed-term employees eligible after 1 year (was 5 years under old rules)
- Basic salary minimum 50% of CTC → higher gratuity for most employees
- ₹20 lakh tax-exempt ceiling remains unchanged
- Gratuity to be paid within 30 days of separation (was 30 days from claim date)
Example: 8 Years Service, ₹50,000 Basic+DA
Gratuity = (15 × 50,000 × 8) / 26 = ₹2,30,769
Fully tax-exempt (below ₹20L ceiling)
Frequently Asked Questions
What is the formula for calculating gratuity in India?
For employees covered under the Payment of Gratuity Act: Gratuity = (15 × Last drawn salary × Years of service) / 26. For non-covered employees: the divisor is 30 instead of 26. 'Last drawn salary' means basic + dearness allowance (DA). If the employee completes more than 6 months in the final year, that year is rounded up to a full year.
How long do you need to work to get gratuity in India?
Under the old rules, permanent employees needed to complete at least 5 years of continuous service. Under the new Labour Code (effective November 2025), fixed-term contract employees are now eligible for gratuity after just 1 year of service — a significant change that benefits contractual workers.
Is gratuity taxable in India?
Gratuity received by a government employee is fully tax-exempt. For private sector employees, gratuity is tax-exempt up to ₹20,00,000 (₹20 lakh) as per the latest amendment. Any amount above ₹20L is taxable as income from other sources, with 30% TDS applicable on the taxable portion.
What is the new Labour Code gratuity rule for fixed-term employees?
The Code on Social Security 2020 (effective November 2025) extends gratuity eligibility to fixed-term employees after completing 1 year of service, compared to 5 years for permanent employees under the old Payment of Gratuity Act. The calculation formula remains the same — (15 × basic × years) / 26.
Does gratuity increase with the new Labour Code?
Yes, indirectly. The new Labour Code also mandates a minimum basic salary of 50% of CTC. Since gratuity is calculated on basic salary, a higher basic means higher gratuity accrual per year. An employee with basic at 40% of CTC will see gratuity increase by 25% when basic is raised to 50% of CTC.