Skip to main content
Adullam Tools

Statutory retirement benefit

India Gratuity Calculator

Enter the last drawn Basic + DA and the service period to see the statutory gratuity, the exempt and taxable split, and exactly how much a few more months of service would add. Add total monthly pay to include the labour codes' 50% add-back.

Statutory rates as of 8 May 2026

Inputs

Last drawn salary

Use the figures paid in the final month of service.

Basic and dearness allowance only — not gross pay (add any retaining allowance).

Leave blank to use the figure above as the wage.

Length of service

Entering dates pins the six-month rounding boundary exactly.

First day of employment per the contract

Final day on the rolls, including notice period

Coverage

The divisor and the service requirement depend on the establishment and the type of employment.

Establishment covered by statutory gratuity

Applies once ten or more persons are employed.

Fixed term employee leaving at the end of the term

On expiry of the contract term, one year of service is enough.

Indian gratuity explained

Gratuity looks like a familiar severance benefit, but the eligibility test, the formula and the tax treatment all differ from what most foreign parent companies expect — and since the labour codes took effect on 21 November 2025, so does the wage it is computed on. This is the guidance we give finance and HR teams running an Indian subsidiary.

What gratuity actually is

Gratuity is a statutory lump sum payable on exit, funded entirely by the employer. It applies to every establishment with ten or more employees and, once applicable, coverage continues even if headcount later drops.

It becomes payable on resignation, retirement, superannuation, death or disablement — but only after five years of continuous service, except on death or disablement or when a fixed term contract expires. That single condition is what makes the benefit behave like a cliff rather than an accrual.

Since 21 November 2025 gratuity sits in Chapter V of the Code on Social Security, 2020, which replaced the Payment of Gratuity Act 1972. The formula is unchanged; the wage is not. Where Basic plus DA plus retaining allowance are less than half of total remuneration, the shortfall counts as wages — and gratuity is paid on those wages whether or not Basic was raised.

Why the formula divides by 26

The statutory formula is (15 ÷ 26) × last drawn monthly wages × completed years (s.53(2) of the Code, formerly s.4(2) of the Payment of Gratuity Act). Twenty-six is the number of working days in a month: thirty days less four paid weekly holidays. Dividing by 26 gives a day rate, and multiplying by 15 gives fifteen days of wages for each completed year.

Establishments outside statutory coverage that pay gratuity voluntarily normally divide by 30 instead. The covered figure is about 15% higher on identical pay, which is why the coverage switch in this calculator changes the result.

On a wage of ₹50,000 and seven completed years the calculation is (15 ÷ 26) × 50,000 × 7 = ₹2,01,923 — a day rate of ₹1,923, fifteen days per year, seven years.

Which wage — Code wages and the 50% add-back

The exit date decides. Exits up to 20 November 2025 are paid under the repealed Payment of Gratuity Act on Basic + DA. Exits from 21 November 2025 are paid on wages as defined in s.2(88) of the Code, and under MoLE's Additional FAQs of 16 March 2026 (Q6, Q17) that wage is applied to the whole service, years before the Code included.

Code wages are Basic + DA + retaining allowance. If the excluded heads — HRA, conveyance, special allowance and the like — exceed half of total remuneration, the excess is added to wages (first proviso). The FAQs (Q1) count the employer's PF and pension contributions and statutory bonus in that total, and leave out gratuity and ESI. Take Basic of ₹50,000 a month and cash pay of ₹1,00,000: adding the employer PF of ₹3,000 (12% of the ₹25,000 wage ceiling in force from 17 September 2026) gives ₹1,03,000, half of which — ₹51,500 — is the wage. Over seven years that is (15 ÷ 26) × 51,500 × 7 = ₹2,07,981, which is ₹6,058 more than on Basic alone (₹2,01,923).

This calculator applies the add-back only when total monthly pay is entered; left blank, the Basic + DA entered is used as the wage. Some points remain open. The FAQs are guidance rather than law, and the gratuity FAQ Q13 excludes payments not listed in s.2(88) from gratuity, which could be read as leaving special allowance out altogether. Have large amounts reviewed by a chartered accountant.

The five-year cliff and the six-month rounding rule

Leaving at four years and eleven months normally yields nothing (s.53(1)). Completing five years creates five full years of entitlement at once, so the value of staying is highly non-linear near the boundary.

After five years the trailing part-year is rounded: more than six months counts as a full year, anything shorter is dropped. Six years and seven months counts as seven years; six years, five months and twenty-nine days counts as six. A single day can be worth fifteen days of wages.

There are exceptions to the five-year test. Death and disablement qualify at any length of service. Under the labour codes, a fixed term employee whose contract term expires qualifies after one year (Social Security (Central) Rules 2026 r.33(1)(a)); leaving before the term ends is not yet settled. Several High Courts have also treated 240 days worked in the fifth year as completing five years, though this is not applied uniformly nationwide.

Two ₹20,00,000 limits — the statutory maximum and the tax exemption

The first ₹20,00,000 is a labour-law ceiling. Statutory gratuity of a covered establishment cannot exceed it (s.53(3) of the Code; the figure notified earlier by S.O. 1420(E)). Where the formula gives more, the excess is owed only if an employment contract or settlement provides for it. This calculator caps the statutory amount and shows the uncapped formula separately.

The second is the tax exemption. Section 19(1) Table Sl.3-6 of the Income-tax Act, 2025 (formerly s.10(10)) exempts private sector gratuity up to ₹20,00,000. Amounts above it are added to salary income for the year at slab rates and the employer withholds TDS on payment. The treatment is the same under the old and the new tax regime.

Two tax points are unsettled. The entry for statutory gratuity (Sl.5) still refers to the repealed Payment of Gratuity Act, and no CBDT clarification on gratuity paid under the Code has been found. The lifetime aggregation of earlier exempt gratuity (s.19(2)(a)) is written for other gratuity (Sl.6), so whether it also binds statutory gratuity is a matter of interpretation. For an expatriate returning home, an amount exempt in India may still be taxable in the home country, so residence status and the applicable treaty need to be checked.

What the employer has to do

Gratuity is an accrued liability. Practice is to provision 4.81% of the gratuity wage each month (15 ÷ 26 ÷ 12), which is the figure that appears on the CTC statement. After the labour codes that wage includes the 50% add-back, so a provision built on Basic alone may fall short. Companies reporting under Ind AS 19 or AS 15 must recognise an actuarially valued liability rather than a flat percentage.

Many subsidiaries fund the liability through a group gratuity scheme with an insurer. Contributions to an approved fund are deductible and the scheme smooths the cash impact when several long-serving employees exit at once.

Payment is due within thirty days of gratuity becoming payable (s.56(3) of the Code), and simple interest runs on late payment until it is paid (s.56(4)). The employee applies on Form-IV; within fifteen days the employer answers on Form-V, either stating the amount and a payment date no later than thirty days after the application or giving reasons for rejection (Social Security (Central) Rules 2026 r.33).

What foreign parent companies most often miss

First, gratuity shown in CTC is not money the employee is certain to receive. It is the employer's expected cost, and no obligation arises before five years (one year for a fixed term employee whose term expires). Comparing offers on headline CTC alone overstates the value of the package.

Second, timing a separation just before the five-year mark invites a dispute. If it looks engineered to defeat the entitlement, labour authorities and courts take a dim view.

Third, a pay rise increases the liability retrospectively. Gratuity is computed on the last drawn wage, so a promotion applies the new wage to every completed year — and under the labour codes even a rise in allowances can lift the wage through the 50% add-back. Model the change in gratuity liability whenever a salary revision is planned.

Exit processing checklist

  • Recompute service from the joining date to the last working day and check the six-month boundary
  • For an exit on or after 21 November 2025, compute on Code wages with the 50% add-back
  • Reconcile last drawn Basic + DA and total pay against the final payslip
  • Check whether any amount above the ₹20,00,000 statutory maximum is owed under the contract
  • Confirm how much gratuity exemption the employee used at earlier employers
  • Answer a Form-IV claim on Form-V within fifteen days and pay within thirty days
  • Split the amount recoverable from the group gratuity policy from what the company funds directly
  • Fold leave encashment and notice period adjustments into the full and final settlement

Legal basis

  • Code on Social Security, 2020 s.53 — eligibility, formula, six-month rounding and statutory maximum (in force 21 Nov 2025)
  • Same Code s.2(88) — definition of wages and the 50% add-back (first proviso); s.56 — thirty-day payment and interest on delay
  • Social Security (Central) Rules 2026 r.33 — claim and notice procedure, one-year rule for fixed term employees
  • MoLE Additional FAQs on Labour Codes (16 Mar 2026) Q1, Q6, Q13, Q14, Q17 — what counts as remuneration, timing, past service
  • Payment of Gratuity Act 1972 s.2(s), s.4 — exits up to 20 Nov 2025
  • Income-tax Act, 2025 s.19(1) Table Sl.3-6 (formerly s.10(10)) — exemption up to ₹20,00,000, the notified limit continuing under s.536(2)(j)

Frequently asked questions

As a rule, yes. Section 53(1) of the Code on Social Security requires five years of continuous service, so an exit at four years and eleven months creates no entitlement. The exceptions are death and disablement, and a fixed term employee leaving when the contract term expires, who qualifies after one year. Several High Courts have also accepted 240 days worked in the fifth year as completing five years, so if you have crossed four years and 240 days it is worth raising with the employer.

The gratuity line in CTC is the employer's monthly provision of roughly 4.81% of the gratuity wage, not money paid to the employee. If the service requirement is not met, no obligation arises and the company's position is legally correct. This is why comparing offers on headline CTC overstates the real value of a package.

It depends on the exit date. For exits up to 20 November 2025 only Basic and dearness allowance count. For exits from 21 November 2025 gratuity runs on Code wages: where allowances such as HRA, special and conveyance allowance exceed half of total remuneration, the excess is added to wages. MoLE's Additional FAQs (16 March 2026, Q1) also count the employer's PF and pension contributions in that total. The lower the Basic share, the more gratuity rises compared with the old rules. Enter total monthly pay in this calculator to include the add-back.

Not for other gratuity (Income-tax Act, 2025 Table Sl.6): it is a lifetime limit, reduced by gratuity exempted at earlier employers (s.19(2)(a)). Whether the same aggregation applies to statutory gratuity (Sl.5) is not clear from the text. If gratuity was exempted at an earlier job, tell the employer and confirm the treatment with a chartered accountant — an undeclared earlier exemption can be recovered by the tax department later.

Payment is due within thirty days of the gratuity becoming payable (s.56(3) of the Code), and simple interest runs until it is paid (s.56(4)). The employee applies on Form-IV, and within fifteen days the employer must answer on Form-V with the amount and a payment date or the reasons for rejection (Social Security (Central) Rules 2026 r.33). If the employer rejects the claim or does not answer, the employee can apply to the Competent Authority.

Eligibility turns on continuous service and the type of contract. Five or more years at the same establishment qualifies even if the contract was renewed annually. A fixed term employee under the labour codes qualifies after one year when the contract term expires. For workers supplied through a contractor, MoLE's Additional FAQs (16 March 2026, Q16) say the contractor, as employer, pays gratuity after five years of continuous service.

An expatriate employed by the Indian entity and on its payroll is treated like any other employee. Where the person remains employed by the parent and is only seconded, the answer depends on who directs the work and who bears the cost. An amount exempt in India may still be taxable at home, so both sides need review.

Yes. Once the trailing part-year passes six months, the whole year counts. Leaving at six years, five months and twenty-five days counts as six years; leaving after six years and six months counts as seven, adding a full fifteen days of wages. An exit before or after 21 November 2025 also changes the wage used. The milestone card in this calculator shows the next boundary date and what it is worth.

Statutory gratuity of a covered establishment stops at ₹20,00,000 (s.53(3) of the Code). Anything above it is owed only if an employment contract, company policy or settlement gives better terms (s.53(5)), and whatever exceeds the tax exemption is then taxable. For example, a wage of ₹3,00,000 a month over 25 years gives about ₹43,26,923 on the formula, but the statutory amount is ₹20,00,000.

Related tools

EPF calculatorSplit employee and employer EPF and EPS contributions and project the corpus to retirement.HRA exemptionCalculate the exempt portion of house rent allowance from actual rent and city category.Salary calculatorTurn cost-to-company into the amount that actually reaches the bank account, after EPF, income tax and professional tax.
Estimated gratuity₹1,73,077