Gratuity is a lump sum your employer pays you for long service — a legally mandated thank-you under the Payment of Gratuity Act. If you've seen the '15/26' formula and found it baffling, here's exactly how it works.
Are you eligible?
You qualify once you've completed five years of continuous service with the same employer. The one exception: if service ends due to death or disablement, the five-year requirement is waived.
Try it on your numbersIn-Hand Salary CalculatorCTC to monthly take-home, with full breakupThe formula
- Gratuity = (15 ÷ 26) × last drawn monthly salary × years of service
- 'Salary' means basic pay + dearness allowance (DA) — not your full CTC.
- The 15/26 represents 15 days' wages for each completed year, counted on a 26-working-day month.
One rounding rule matters: any part of your final year beyond six months counts as a full year. So 10 years and 7 months is treated as 11 years, while 10 years and 5 months stays at 10.
A worked example
Say your last drawn basic + DA is ₹50,000 a month and you've served 10 years. Your gratuity is (15 ÷ 26) × ₹50,000 × 10 = ₹2,88,462. That full amount is paid out when you leave.
How much is tax-free?
Gratuity is tax-exempt up to ₹20 lakh over your whole career (for employees covered by the Act). Anything above ₹20 lakh is added to your income and taxed at your slab. For most people the entire amount is tax-free — it takes a high final salary and long tenure to cross the cap.
When do you get it?
Gratuity is payable when you leave — on resignation (after five years of continuous service), retirement or termination, and to your nominee in case of death. Fixed-term employees qualify after just one year under the Code on Social Security, in force since 21 November 2025. Your employer must pay it within 30 days of it becoming due.
Work out your exact figure, including the ₹20 lakh tax-free split:
Gratuity CalculatorFrequently asked questions
- How is gratuity calculated in India?
- Gratuity = (15 ÷ 26) × last drawn monthly salary (basic + DA) × years of service. The 15/26 means 15 days' wages for each completed year on a 26-working-day month. Service beyond 6 months in your final year counts as a full year.
- How many years are needed to be eligible for gratuity?
- Five years of continuous service with the same employer. The only exception is when service ends due to death or disablement, in which case the five-year requirement is waived.
- How much gratuity is tax-free?
- Up to ₹20 lakh over your whole career for employees covered by the Payment of Gratuity Act. Anything above ₹20 lakh is added to your income and taxed at your slab — but for most people the entire amount is tax-free.