The formula
Section 53 of the Code on Social Security, 2020 gives 15 days’ wages for every completed year of service, or part of a year above six months, based on the wages last drawn. For monthly-paid employees, 15 days’ wages means the monthly wage ÷ 26 × 15.
Gratuity = last monthly basic + DA × 15 ÷ 26 × years counted
Worked example
₹50,000 basic + DA, 7 years 8 months
The eight months round the service up to 8 years, so the gratuity is ₹50,000 ÷ 26 × 15 × 8 = ₹2,30,769.
Gratuity payable₹2,30,7698 years counted
- Tax-free part
- ₹2,30,769
- Taxable part
- ₹0
- Monthly wages used
- ₹50,000
- Formula
- ₹50,000 ÷ 26 × 15 × 8
- Gratuity before ceiling
- ₹2,30,769
- Statutory ceiling
- ₹20,00,000
- Gratuity payable
- ₹2,30,769
What changed with the labour codes
- Wider definition of wages. Wages are basic pay, dearness allowance and retaining allowance – but if excluded items such as HRA, conveyance and special allowances add up to more than half of your total pay, the excess counts as wages. Enter your total monthly pay under More options to apply this rule.
- Fixed-term employees no longer need five years: they are paid pro rata when the contract ends.
- Ceiling remains as notified by the Central Government – currently ₹20 lakh.
When gratuity is paid
On superannuation, retirement, resignation, death or disablement, or at the end of a fixed-term contract. Part or all of it can be forfeited only if you were dismissed for misconduct causing loss, violence or an offence involving moral turpitude.