Gratuity calculator that knows the 15/26 rule
Payment of Gratuity Act 1972 formula for covered employees, 15/30 for non-covered, full exemption for government employees, ₹20 lakh tax-free cap. See exactly what your employer owes you.
Calculate Gratuity
Enter last drawn Basic + DA (not gross), years of service, and employee category. We apply the correct formula and compute tax-free portion.
10 years service at ₹50,000 last drawn (Basic+DA), 15/26 formula.
If you stay another 5 years at same Basic+DA, gratuity nearly doubles. Salary increments will multiply this further.
The 15/26 formula explained
The Payment of Gratuity Act 1972 governs gratuity for private employees in establishments with 10+ workers. The formula encodes "half a month's wages per year of service" — but with a working-day denominator.
Gratuity = (Last drawn Basic + DA) × 15/26 × completed years
- 15 = days of wages per year of service (half a month).
- 26 = working days in a month (calendar 30 minus 4 Sundays — the historical labour-law default).
- Last drawn = Basic + DA only. Allowances, HRA, bonus, perks are excluded.
- Completed years — 6+ months in the final year rounds UP. 5 months 29 days does not.
Gratuity = (avg Basic+DA last 10 months) × 15/30 × completed years
Non-covered employers use 15/30 instead of 15/26 — a roughly 13% lower payout. They also use 10-month average instead of last-drawn (which protects employees from a sudden last-month salary cut).
Worked example
Last drawn ₹50,000 (Basic+DA), 10 years service, covered employee:
Gratuity = 50,000 × 15/26 × 10
= 50,000 × 0.5769 × 10
= ₹2,88,462The ₹20 lakh tax-free cap — lifetime, not per-employer
Under Section 10(10) of the Income Tax Act, gratuity received by a private-sector employee is exempt up to the LEAST of three amounts:
- Actual gratuity received
- ₹20 lakh (raised from ₹10 lakh by Gazette Notification dated 29 March 2018)
- Formula amount — (Basic+DA) × 15/26 × years for covered, OR avg × 15/30 × years for non-covered
The cap is cumulative across your entire career. If you received ₹15L gratuity from Employer 1 (all tax-free), and ₹10L from Employer 2 — only ₹5L of the second is tax-free (₹20L − ₹15L already used). The remaining ₹5L is taxable as Salary at slab rate.
Government employees exempt fully. Central, State, Defence, and Local Authority employees enjoy 100% gratuity exemption regardless of amount under Section 10(10)(i). The ₹20L cap applies only to private sector.
2018 amendment — what changed
| Era | Tax-free cap | Notes |
|---|---|---|
| Before 29-Mar-2018 | ₹10 lakh | Last raised in 2010 |
| From 29-Mar-2018 | ₹20 lakh | Pursuant to amendment in POGA 2018 |
| Today (April 2026) | ₹20 lakh | No further revision yet |
The 5-year rule and its exceptions
Under POGA Section 4, a minimum 5 years of "continuous service" is required to qualify for gratuity. But case law and the Act itself carve out important exceptions.
4 years 240 days = 5 years
The Madras High Court (Mettur Beardsell Ltd vs Regional Labour Commissioner, 1998) and Kerala High Court rulings have established that 240 days in the 5th year qualifies as a complete year. So 4 years 240 days (~4.66 years) makes you eligible. Many tech and BFSI HRs respect this; some don't and force litigation.
Death or disability — no minimum
If an employee dies or becomes permanently disabled (accident or disease), gratuity is payable to the nominee even after just 1 year of service. The Act treats this as humanitarian protection, not contractual minimum.
Termination, retirement, resignation — all qualify
Gratuity is payable on retirement, resignation, termination (except for misconduct), death, or disablement. It is NOT forfeited for resignation — many employees mistakenly believe quitting voids gratuity. Forfeiture is only for "termination for misconduct involving moral turpitude" with a documented inquiry.
30-day payment rule. Employer must pay within 30 days of gratuity becoming payable. Delayed payment attracts simple interest at the rate notified (currently ~10% p.a.). If denied, file claim with Controlling Authority (Labour Commissioner) within 90 days.
Should you stay for gratuity?
The "stay 5 years for gratuity" math is rarely worth it if a much higher offer is on the table — but for borderline cases, run the numbers.
When staying makes sense
- You're at 4 years 6 months — quitting now means zero gratuity vs ~3 months of salary if you stay 5 more months.
- Counter-offer matches market — gratuity is bonus, not the main reason.
- You'll cross 10 years — perception advantage on resume + accumulated gratuity multiplies.
When it doesn't
- New offer is 30%+ higher — annual delta dwarfs the 1-year-equivalent gratuity.
- Your basic+DA is low (mostly variable / RSU heavy) — gratuity formula ignores those.
- Toxic environment — opportunity cost of mental health rarely beats ₹3-5L gratuity.
Boost your gratuity quietly
- Negotiate higher Basic+DA, lower allowances at next appraisal — same gross, higher gratuity.
- Time your final exit to cross 6 months in the trailing year — saves a full year of formula multiplier.
- Some employers offer gratuity insurance via LIC or trust — confirm in offer letter if you're senior.
Common questions
What is the minimum service for gratuity?
5 years of continuous service under Payment of Gratuity Act 1972. Madras and Kerala High Court rulings allow 4 years and 240 days (~4 years 8 months) to count as 5 years — but this requires the employer to honour or you to litigate. Death or permanent disability waives the 5-year requirement entirely; gratuity is payable even after 1 year. Termination for misconduct (with documented inquiry) can forfeit gratuity.
What is the gratuity formula in India?
For employees covered under Payment of Gratuity Act 1972 (establishments with 10+ employees): Gratuity = (Last drawn Basic + DA) × 15/26 × completed years of service. For non-covered employees: (average Basic+DA of last 10 months) × 15/30 × years — about 13% lower. Government employees get gratuity per their pension rules (CCS or state) — fully tax-free regardless of amount.
Is gratuity tax-free?
Government employees: 100% tax-free, no cap. Private sector covered under POGA: tax-free up to ₹20 lakh (lifetime cumulative across all employers). The exemption is the LEAST of: actual gratuity, ₹20 lakh, or formula amount. Excess is taxable as Salary at slab rate. Cap was raised from ₹10L to ₹20L in March 2018; no further revision since.
Why 15/26 in the formula?
15 = days of wages payable per year of service (half a month). 26 = working days in a month (calendar 30 minus 4 Sundays). Translation: half a month's salary for each completed year. Non-covered employees use 30 (calendar days) as the divisor, which produces a roughly 13% lower payout. The 15/26 ratio is fixed by statute — it doesn't matter if your company runs 5-day weeks now.
How is partial year counted?
Six months or more in the final year is rounded UP to a complete year. Less than 6 months is ignored entirely. Example: 7 years 8 months = 8 years; 7 years 5 months = 7 years; 4 years 11 months = 5 years (qualifies). This rule applies only to the final year — earlier years must be fully completed. Plan your exit to cross the 6-month mark.
Can the employer cap gratuity below the formula?
No — for covered employees, the formula amount is the legal minimum. The ₹20 lakh figure is the TAX-FREE cap, not a payable cap. Many companies pay more than ₹20L for senior employees with long tenure (the excess is just taxable at slab). If your offer letter or service rules promise gratuity in excess of statutory minimum, that contractual amount applies.
When does the employer have to pay?
Within 30 days of gratuity becoming payable (typically the date of leaving). Delayed payment attracts simple interest at the rate notified by the central government (currently ~10% p.a.). If denied, file claim with the Controlling Authority (Regional Labour Commissioner) within 90 days. Their orders are appealable to the Appellate Authority within 60 days. Cases over ₹20 lakh may be filed in civil court.
Can I get gratuity if my employer goes bankrupt?
Yes, but it depends. Under POGA Section 4(6), gratuity is a "preferential debt" in insolvency — paid before unsecured creditors but after secured creditors. Companies with 500+ employees must maintain a gratuity trust fund (LIC Group Gratuity Scheme is common) — this protects against insolvency risk. For smaller companies without a trust, recovery becomes part of the liquidation process and may be partial.
Try our other free finance tools
Disclaimer: Calculator implements Payment of Gratuity Act 1972 with 2018 amendment (₹20L tax-free cap). Numbers are estimates; your actual payable may differ if your employment contract, service rules, or wage settlement specifies a higher payment. Tax exemption is per Section 10(10) of Income-tax Act, 1961. Verify with your HR / a CA before relying on these figures for decision-making. BillCraft is not a financial or legal advisor.