Gratuity Calculation Formula in India with Examples
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The gratuity calculation formula in India is gratuity = 15 × last drawn salary × years of service ÷ 26. "Salary" means your last monthly basic pay plus dearness allowance (DA). A final part-year of more than 6 months counts as a full year. For example, with ₹50,000 basic + DA and 10 years 7 months of service, gratuity = 15 × 50,000 × 11 ÷ 26 = ₹3,17,308.
Below we explain where the 15 and 26 come from, the eligibility rules, how gratuity is taxed, and what changed with the new labour codes. Our Gratuity Calculator works out your amount in seconds.
Gratuity formula explained
- 15 = 15 days' wages for every year of service.
- 26 = working days in a month (30 days minus 4 weekly offs). So one day's wage = monthly salary ÷ 26, and 15 days' wages = monthly salary × 15 ÷ 26.
- Last drawn salary = the last month's basic + DA. HRA, special allowance, bonus and reimbursements are not included.
- Years of service = completed years, plus one more if the extra part is more than 6 months.
In short, every year of service earns you about 57.7% of one month's basic + DA (15 ÷ 26).
Gratuity calculation examples
| Basic + DA | Service | Years counted | Gratuity |
|---|---|---|---|
| ₹30,000 | 5 years 0 months | 5 | ₹86,538 |
| ₹40,000 | 7 years 6 months | 7 | ₹1,61,538 |
| ₹40,000 | 7 years 8 months | 8 | ₹1,84,615 |
| ₹50,000 | 10 years 7 months | 11 | ₹3,17,308 |
| ₹1,50,000 | 25 years 0 months | 25 | ₹21,63,462 |
Look at the two ₹40,000 rows. Exactly 6 months extra doesn't count, but 7 years 8 months is rounded up to 8 years, and that adds ₹23,077. If you are close to the cut-off, a few more weeks at work can be worth a lot.
Worked example step by step
Neha's last basic is ₹45,000 and her DA is ₹5,000, so her salary for gratuity is ₹50,000. She joined on 1 June 2015 and leaves on 31 December 2025, which is 10 years 7 months.
- Years counted: 7 months is more than 6, so 11 years.
- 15 days' wages: 50,000 × 15 ÷ 26 = ₹28,846.15.
- Gratuity: ₹28,846.15 × 11 = ₹3,17,307.69, about ₹3,17,308.
Gratuity for private companies not covered by the Act
If your employer isn't covered by the gratuity law (it applies to establishments with 10 or more employees) but pays gratuity anyway, the usual formula is 15 × salary × completed years ÷ 30, and part-years aren't rounded up. With ₹50,000 and 10 years 7 months, that is 15 × 50,000 × 10 ÷ 30 = ₹2,50,000. Your employment contract or the company's gratuity policy decides the exact terms.
Gratuity eligibility: the 5-year rule
- Permanent employees normally need 5 years of continuous service.
- No minimum applies on death or disablement. Gratuity is then paid to the nominee or to the employee.
- Courts have sometimes treated 4 years and 240 working days (190 for 5-day establishments) as 5 years. Don't count on it, but it's worth asking HR if you are close.
- Notice-period days you actually serve count as service.
Gratuity under the new labour codes
The Code on Social Security, 2020, which replaces the Payment of Gratuity Act, has been reported as taking effect from 21 November 2025. The basic 15-days-per-year calculation stays the same. Two changes matter for many salaried people:
- Fixed-term employees become eligible after 1 year of service, paid in proportion to the time worked. Permanent employees still need 5 years.
- Wider definition of wages: if allowances excluded from "wages" exceed 50% of your total pay, the excess is added back to wages. If your basic is only 30–40% of your pay, your gratuity may be worked out on a higher figure than basic + DA.
Employers are still updating their policies under these rules. Ask HR how your gratuity will be calculated, and check the latest official notifications.
Is gratuity taxable? The ₹20 lakh limit
- Government employees: gratuity is fully tax-free.
- Private-sector employees: gratuity is tax-free up to ₹20 lakh in total over your working life. Any amount above that is taxed as salary at your slab rate.
- The exemption is available under both the old and the new tax regime.
Example: the ₹1,50,000 × 25 years case above gives ₹21,63,462. Of that, ₹20,00,000 is tax-free and ₹1,63,462 is taxable. If you got a tax-free gratuity from an earlier employer, it uses up part of the same ₹20 lakh limit.
Gratuity in your CTC
Many offer letters include gratuity in CTC at about 4.81% of basic (15 ÷ 26 ÷ 12). This isn't paid monthly. It is a provision you receive only if you stay long enough to become eligible. Tick the gratuity option in our Salary Calculator to see how it lowers your monthly in-hand pay.
Frequently asked questions
How is gratuity calculated for 5 years?
Gratuity = 15 × last basic + DA × 5 ÷ 26. With ₹30,000 basic + DA, that is ₹86,538.
Is gratuity paid if I resign after 4.5 years?
Usually no, because the 5-year minimum isn't met. The exceptions are death, disablement, fixed-term contracts under the new rules, and some court rulings for service very close to 5 years.
Is HRA included in gratuity salary?
No. Only basic pay and DA count under the traditional formula. Under the new labour codes, some allowances may be added back if they exceed 50% of your pay.
How long does an employer take to pay gratuity?
The law requires payment within 30 days of it becoming due. A late payment can attract simple interest.
This article is for information only and is not legal or tax advice. Rules can change; confirm with your employer or a professional.