Who is eligible for gratuity, and how much will you get?

The four labour codes came into force on 21 November 2025. Gratuity is now governed by the Code on Social Security, 2020, which replaced the Payment of Gratuity Act, 1972. The core rule is unchanged for most people: a permanent employee needs 5 years of continuous service with the same employer. The big change is for fixed-term employees, who now qualify after 1 year.

Gratuity becomes payable when employment ends after the qualifying service, whether by resignation, retirement, superannuation or the end of a fixed-term contract. If employment ends because of death or disablement, no minimum service is needed and the amount goes to you or your nominee.

For employees covered by the Code, gratuity is fifteen days of wages for every year of service, with a month taken as 26 working days:

Gratuity = 15 ÷ 26 × last drawn monthly wages × years of service

Wages here means basic pay plus dearness allowance. On ₹50,000 a month and 10 years of service that is ₹2,88,462, or ₹28,846 for each year worked. A final part year of six months or more counts as a full year, so 5 years and 6 months is paid as 6 years.

The Code also caps how much of your pay can sit outside "wages". If allowances make up more than 50% of total pay, the excess is added back to wages for gratuity. With basic and DA of ₹40,000 on total pay of ₹1,00,000 a month, the wages used rise to ₹50,000. Over 10 years gratuity becomes ₹2,88,462 instead of ₹2,30,769.

The amount payable under the Code is capped at ₹20 lakh. For private-sector employees the same ₹20 lakh is also the lifetime limit for tax-free gratuity across all employers. Government employees' gratuity is fully exempt.

The table assumes a permanent employee covered by the Code, with no allowance top-up from the 50% rule. Amounts that hit the ₹20 lakh ceiling are shown at the ceiling.

• Each year of service adds about ₹23,077 on wages of ₹40,000, about 58% of one month's wages.
• On ₹1,50,000 a month, 30 years works out to ₹25,96,154 by formula, but the payout is capped at ₹20,00,000.
• If your employer is not covered by the Code, the formula uses 15 ÷ 30 and completed years only: 10 years 8 months on ₹50,000 gives ₹2,50,000, against ₹3,17,308 for a covered employee.

Many people ask whether 4 years and 240 days of work is enough for gratuity. Under the old Payment of Gratuity Act, a year of continuous service could be deemed complete if the employee had worked a minimum number of days in it, such as 240 days. Relying on this, some courts and some employers have treated 4 years and 240 days as 5 years of continuous service. Others have not, and the position has never been uniform.

Our calculator follows the plain reading: eligibility counts completed years of continuous service. The six-month rounding applies only to the amount once you are eligible, not to the 5-year test. The table below shows how the engine treats common cases at wages of ₹50,000 a month.

For private-sector employees, gratuity is tax-free up to ₹20 lakh over your whole working life, not per employer. Anything you received tax-free from earlier employers is subtracted first. Any excess is added to your salary income for the year and taxed at your slab rate.

Suppose you have already received ₹15 lakh of tax-free gratuity from an earlier job and now leave with ₹6,92,308 due. Only ₹5,00,000 is tax-free this time and ₹1,92,308 is taxable. Keep the gratuity statements from every employer, because you may need them to show what you have already claimed.

Employers often show gratuity in the CTC at about 4.81% of basic. That is an accounting provision for the future payout, not an amount set aside in your name. What you finally receive depends on your last drawn wages and service, as worked out above, not on the sum of those yearly provisions.

1. Assuming the gratuity line in your CTC is paid every year. It is a provision; you receive gratuity only when you leave after qualifying service.
2. Using gross salary in the formula. The formula uses basic plus DA, topped up only if allowances exceed half of total pay.
3. Forgetting the lifetime tax-free limit. Tax-free gratuity received from earlier employers reduces what is tax-free from the next one.
4. Not updating your nominee. Gratuity on death is paid to the nominee, so keep the nomination with your employer current.
5. Treating a fixed-term contract as ineligible. Under the Code, a fixed-term employee who completes one year qualifies.