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Gratuity Calculator

Gratuity under the Payment of Gratuity Act: the (15/26) formula, the 6-month rounding rule and the 5-year eligibility test.

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Quick answer

Gratuity = (15 ÷ 26) × last drawn (basic + DA) × years of service, with service beyond 6 months in the final year rounding up. On a ₹50,000 basic after 10 years: about ₹2.88 lakh. Five full years of service is the eligibility gate.

Basic salary plus dearness allowance only, not gross.

Gratuity amount
₹2,88,462
₹2.88 L
Qualifying years
10
Service beyond 6 months in the final year rounds up.

Formula: (15 ÷ 26) × last drawn (basic + DA) × qualifying years, for employees covered by the Payment of Gratuity Act. The tax-exempt ceiling is ₹20 lakh across your career; amounts above it are taxable.

Formulas last verified 2026-10-10. Results are estimates, not financial advice. How we calculate.

What the 15/26 actually means

The Act grants 15 days of wages for every completed year of service, and defines a month as 26 working days (a six-day week minus Sundays). So the per-year entitlement is 15/26 of a month's basic + DA, about 57.7% of one month per year served. Ten years earns roughly 5.8 months of final basic salary.

Reference table (₹ basic + DA per month)

Basic + DA5 years10 years20 years
₹30,000₹86,538₹1,73,077₹3,46,154
₹50,000₹1,44,231₹2,88,462₹5,76,923
₹1,00,000₹2,88,462₹5,76,923₹11,53,846

The details that change your number

  • It is the last drawn salary. A promotion three months before exit lifts the entire calculation, every year of service is revalued at the final basic + DA. This asymmetry rewards exits after increments, not before.
  • Continuous service means one employer. Switching jobs resets the clock (and the rounding). Two five-year stints at different companies each qualify; four years eleven months at one may not, see the eligibility FAQ.
  • Employers may pay more, never less (if covered). Some offer gratuity on gross or with better fractions; your appointment letter and policy documents override the floor upward only.

What to do with it

Gratuity usually lands alongside a job change or retirement, precisely when structured decisions beat impulse. The standard playbook: clear any high-rate debt first (the comparison shows why), then park what has a near-term purpose in an FD ladder, and put the long-horizon remainder to work, a SWP if it must produce income, or equity via SIP-style deployment if it must grow. A lump sum spent in the emotional week after leaving a job rarely survives the month.

Frequently asked questions

What is the gratuity formula?

For establishments covered by the Payment of Gratuity Act: gratuity = (15 ÷ 26) × last drawn (basic + DA) × completed years of service. The 15/26 fraction represents 15 days' wages per year, with a month counted as 26 working days. On ₹50,000 basic after 10 years: (15/26) × 50,000 × 10 = ₹2,88,462.

Who is eligible for gratuity?

Employees with at least 5 years of continuous service with the same employer, in establishments with 10 or more employees. The 5-year condition is waived on death or disablement. Judicial rulings have treated 4 years 240 days as qualifying in many cases, if you are just short of 5, take advice before assuming you get nothing.

How does the 6-month rounding work?

Service beyond six months in the final year counts as a full year: 10 years 7 months counts as 11 years; 10 years 5 months counts as 10. Exactly six months does not round up. Timing a resignation a few weeks later can be worth half a month's salary.

Is gratuity taxable?

For private-sector employees covered by the Act, gratuity is tax-exempt up to a ₹20 lakh lifetime ceiling (government employees: fully exempt). Amounts above the ceiling are taxed as salary. The exemption is the least of: actual gratuity received, the formula amount, and the remaining ceiling.

Does "salary" here mean my CTC?

No, only last drawn basic pay plus dearness allowance. HRA, bonuses, special allowances and reimbursements are excluded. This is why gratuity often disappoints people whose CTC is structured with a small basic: a ₹20 lakh CTC with ₹6 lakh basic earns gratuity on the ₹6 lakh.

What if my employer is not covered by the Act?

Uncovered establishments often still pay gratuity, but the tax rule they follow, Section 10(10)(iii), uses a 30-day month: (15/30) × average basic + DA of the last 10 months × completed years, with a part year dropped rather than rounded up. That is about 13% less per year of service on the same salary. Check your employment terms; the Act's formula is the floor for covered employers, not a universal rule.

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