Gratuity formula
Gratuity = Last salary (basic + DA) × 15 ÷ 26 × Years of serviceThe 15/26 fraction means 15 days' wages for every completed year, with a month taken as 26 working days. Service of more than 6 months in the final year is rounded up to a full year.
Example
Last salary ₹50,000, service 8 years 7 months → counted as 9 years. Gratuity = 50,000 × 15 ÷ 26 × 9 = ₹2,59,615.
Rules you should know
- Eligibility: 5 years of continuous service with the same employer (not required on death or disability).
- Tax-free limit: up to ₹20 lakh of gratuity is exempt for employees covered by the Act; the employer may pay more, but the excess is taxable.
- Not covered by the Act: formula becomes salary × 15 ÷ 30 × completed years (half a month's average salary per year), with no rounding up.
- Government employees: gratuity is fully tax-exempt.
Some courts have held that 4 years and 240 days of service qualifies as 5 years. Employers differ on this — check your company policy.
Planning your exit? Also check your in-hand salary and income tax.