Gratuity Calculation in India: Formula, Eligibility and How Much You'll Get
Gratuity isn't a bonus your employer decides on — it's a statutory formula based on your last drawn salary and years of service. Here's exactly how it's calculated.
TCTechToolsCenter TeamGratuity is a lump-sum payment an employer owes an employee for continuous long service, governed in most cases by the Payment of Gratuity Act, 1972. It's not discretionary or negotiable in the way a bonus is — for organisations covered by the Act, the formula and eligibility rules are fixed by law.
Who is eligible
You generally become eligible for gratuity after completing 5 years of continuous service with the same employer. The 5-year requirement is waived in the case of death or disablement — in those situations, gratuity is payable regardless of how long the employee had worked. "Continuous service" has its own legal definition that accounts for approved leave and certain breaks, so a short gap doesn't automatically reset the clock.
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The formula
For employees covered under the Payment of Gratuity Act (most organisations with 10 or more employees), the formula is: Gratuity = (15 × Last Drawn Basic + DA × Years of Service) / 26. The 26 represents the average working days in a month (a 6-day work week), and 15 represents 15 days of wages for each completed year of service. Employees who've worked more than 6 months in their final year get that year rounded up to a full year.
A worked example
If your last drawn basic salary + DA is ₹50,000/month and you completed 8 years of service: Gratuity = (15 × 50,000 × 8) / 26 = ₹2,30,769 (approximately). Note it uses your basic + DA only, not your full CTC or gross salary — this is a common point of confusion, since gratuity ends up meaningfully smaller than people expect if they mentally calculate it off their total pay.
Is gratuity taxable?
For organisations not covered under the Act
Employers not covered by the Payment of Gratuity Act (smaller establishments that don't meet the employee-count threshold) can still pay gratuity under their own policy, but the formula commonly used there divides by 30 instead of 26, since it's not bound by the Act's specific definition — check your company's HR policy or appointment letter for which formula actually applies to you.
Tools used in this article
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Frequently asked questions
Only in the case of death or disablement, where the 5-year requirement is waived entirely. Otherwise, 5 years of continuous service is generally required to become eligible.
TechToolsCenter Team
Product & Tools
The team behind TechToolsCenter — building fast, private, browser-based tools and writing practical guides on how to get the most out of them.
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