Guide
Gratuity: the 15/26 formula, rounding of service, and the tax limit
Gratuity is a lump sum an employer pays to say thanks for long service. In India it is governed by the Payment of Gratuity Act, which gives eligible employees a formula-based amount when they leave after at least five years of continuous service, whether by resignation, retirement or other cause. Death or disablement pays gratuity regardless of the years of service. The calculator applies the formula and the rounding rule so that you can estimate what to expect.
The formula
For employers covered by the Act, gratuity = (15 ÷ 26) × last drawn salary × completed years of service. The salary means basic pay plus dearness allowance. The factor 15 ÷ 26 stands for fifteen days of pay when a month is counted as twenty-six working days. If the part of the last year of service is more than six months, it is counted as a full year, so 12 years and 8 months is 13 years. If it is six months or less, it is ignored.
A worked example
The defaults are a last drawn pay of 65,000, with 12 years and 8 months of service, and an employer covered by the Act. The years counted are 13, because eight months is more than six. Gratuity is 65,000 × 15 ÷ 26 × 13 = 4,87,500, equal to 37,500 for each year of service, or 7.50 months of pay. At 12 years and 6 months the years counted stay at 12, since six months is not more than six. If the employer is not covered by the Act, the page uses 15 ÷ 30 and the completed years only: for a pay of 48,000 and 9 years the result is 2,16,000, or 24,000 a year.
The upper limit
There is a limit on the amount payable under the Act, 20,00,000 at the time of writing. The field starts at that value and can be changed if the limit changes. With a pay of 5,00,000 and 30 years, the formula gives more than the limit, and the page shows the formula amount and the amount payable after the limit separately. Your employer may agree to pay more than the statutory limit as a matter of policy.
Tax
Gratuity paid to government employees is fully exempt from tax. For private-sector employees covered by the Act, the exempt amount is the least of three: the gratuity received, the amount by the formula and the statutory limit. Anything above that is taxable as salary. The page shows this in a note and does not compute the tax, because it depends on your other income and the regime you choose.
Eligibility
The Act applies to establishments with ten or more employees, subject to its conditions. The five-year rule is a general requirement, and the page shows a warning if you enter fewer than five years. What counts as continuous service depends on the facts, so ask your HR team or a lawyer if you are close to the five-year mark.
Edge cases
Extra months can be from 0 to 11. A pay of zero is rejected. A limit of zero means no limit. Service of zero years gives zero. The employer’s own policy may pay more than the formula, which the page cannot know.
Limits
The formula covers the statutory minimum. Forfeiture of gratuity for misconduct, the effect of a notice period and the details of what counts as continuous service are not modelled. The last drawn salary is the figure at the time of leaving, not an average.
Related tools
- Leave Encashment Calculator estimates the other payout made when you leave a job.
- Notice Period Calculator finds your last working day and any buyout.
- CTC to In-Hand Calculator shows how gratuity forms part of the cost to company.
- EPF Calculator projects the provident fund that comes with the job.
Checked against the current version of the Gratuity Calculator on .