10 years
Each completed year adds 15 days’ wages, and a part year above 6 months counts as a year.
Gratuity calculator
With ₹50,000 a month of wages and 10 years of service, the gratuity due under the Labour Code is ₹2,88,462, and all of it is tax-free.
- Tax Year 2026-27 · verified 26 September 2026
- Checked against the tax department’s calculator
- By the Accurio.in team
Gratuity due · Labour Code
₹2,88,462
10 years counted · ₹50,000 × 15 ÷ 26 a year
- Tax-frees.19(1) Sl. No. 5
- ₹2,88,462
- Taxed as salary
- ₹0
Rounded to the rupee, as the Income Tax Department’s calculator does. The same in both tax regimes.
Up to the formula
Gratuity under the Labour Code is tax-free up to the amount its formula gives, within ₹20 lakh. Anything paid above that is taxed.
Same answer
The gratuity exemption applies in the new regime and the old one alike. The taxed part is added to your salary for the year.
How this is calculated
Gratuity due: 15 days’ wages a year, at most ₹20 lakh (Code on Social Security, s.53)
- 15 days’ wages a year: the last monthly wages ÷ 26 × 15, for every completed year of service and for a part year above 6 months.
- 5 years of continuous service when the job ends (three for a working journalist), except on death, disablement or the end of a fixed-term contract, where the Code sets no minimum. The Labour Ministry’s FAQ says a fixed-term employee is eligible after 1 year under the contract; the page shows it as due from then, and treats a payment before that as gratuity under the Code.
- At most ₹20 lakh (s.53(3)): the 2018 notification under the old Payment of Gratuity Act, which s.164(2)(a) keeps in force as we read it. An employer may pay more under a contract or award (s.53(5)).
Tax-free part: depends on who pays (Income-tax Act, 2025)
- Under government or local-authority pension rules (the Central Civil Services (Pension) Rules, 2021 or a similar scheme): all of it (s.19(1) Table Sl. No. 3). Staff of public-sector companies, banks and statutory bodies are not in this row.
- Under the Labour Code: up to the amount the Code’s formula gives, within ₹20 lakh (Sl. No. 5). Sl. No. 5 still names the Payment of Gratuity Act, 1972, which the Code repealed on 21 November 2025; read with s.8 of the General Clauses Act, it applies to gratuity under the Code. That is our reading: no court ruling or CBDT circular says so yet.
- Any other gratuity: the least of the amount paid, ₹20 lakh less what was tax-free before, and 50% of a month’s average salary over the 10 months before the month you left, for each completed year (Sl. No. 6).
- On death: for a widow, children or dependants, gratuity “computed as per” those rows is tax-free (Schedule III Sl. No. 38); we read that as the same amount.
- The same in both regimes: the new regime does not remove these (s.202(2)).
Assumptions
- A monthly-paid employee in continuous service as s.54 of the Code defines it. Piece-rated and seasonal work, and working journalists (three years), are not covered.
- Wages as the Code defines them: basic pay, DA and retaining allowance, plus allowances above 50% of your pay.
- For a fixed-term or deceased employee the Code says “pro rata” without a method; the same formula is used.
- No gratuity was tax-free for you before (it counts towards the ₹20 lakh of Sl. No. 6).
- For an employer the Code does not cover, the one amount you enter is used as both the average salary for the tax rule and the wages last drawn for the formula’s estimate.
- Rounded to the rupee, as the Income Tax Department’s calculator does.
- Not covered: forfeiture for misconduct (s.53(6)).
From the Code on Social Security, 2020, the ₹20 lakh ceiling (S.O. 1420(E)), the Income-tax Act, 2025 and the General Clauses Act, 1897. Checked against twelve cases on the Income Tax Department’s Taxable Gratuity Calculator. Rules checked 26 September 2026.
Is my employer covered by the Labour Code?
Yes if it is a factory, mine, oilfield, plantation, port or railway company, or a shop or establishment that had ten or more employees on any day of the last twelve months (First Schedule). Once covered it stays covered, even if the number later falls (s.1(8)). Not covered: holders of Central or State Government posts with their own gratuity rules, and apprentices.
Do I need 5 years of service?
On leaving or retiring, yes: 5 years of continuous service (s.53(1)); three for a working journalist. Not on death or disablement, or at the end of a fixed-term contract, where the Code sets no minimum; the Labour Ministry’s FAQ says a fixed-term employee is eligible after 1 year under the contract. An employer may still pay gratuity earlier; for tax it is then “any other gratuity”, worked out on your average salary.
What happened to the Payment of Gratuity Act?
The Code on Social Security repealed it from 21 November 2025 (s.164). The Code keeps the same formula, 15 days’ wages a year, and, as we read s.164(2)(a), the ₹20 lakh ceiling, but counts “wages” its own way, so the amount can be higher than basic + DA × 15 ÷ 26.
What if my employer pays more than the formula?
The Code lets an employer pay better terms (s.53(5)). For tax, gratuity under the Code is tax-free up to the formula amount within ₹20 lakh; we read anything above that as taxed with your salary. Choose “I’ll enter it” above to see the split.
Is gratuity paid to my family on my death taxed?
For a widow, children or dependants it is tax-free up to the same amount as for the employee (Schedule III Sl. No. 38). Under the Code it goes to the nominee, or to the heirs if no nomination was made (s.53(1)).
What changed (latest: 1 April 2026)
The rules this page uses, by the date each took effect, newest first. Each was last checked against its official source between 26 September 2026 and 5 October 2026.
-
4 changes
- Tax-exempt gratuity paid under the Code (s.19(1) Table Sl. No. 5, as we read it)
- Tax-exempt gratuity, "any other gratuity" (s.19(1) Table Sl. No. 6): the limit based on salary
- Gratuity paid to heirs on an employee's death (Schedule III Sl. No. 38)
- Government employees' gratuity (s.19(1) Table Sl. No. 3)
-
6 changes
- Gratuity payable
- Gratuity eligibility: continuous service
- Fixed-term employee gratuity eligibility
- Who the Code's gratuity chapter covers
- "Wages" 50% add-back
- Continuous service for gratuity (Code on Social Security, 2020, s.54)
Mistakes we have fixed on any page are listed on Corrections.