Gratuity Calculation Formula: Worked Examples and Table

If your employer is covered by the Payment of Gratuity Act, gratuity is 15 × last drawn basic + DA × years of service ÷ 26. With a last basic + DA of ₹50,000 and 10 years 7 months of service, you get ₹3,17,308.

The two formulas

1. Employer covered by the Gratuity Act: 15 × last basic + DA × years ÷ 26. Service of 6 months or more in the final year counts as a full year.
2. Employer not covered: 15 × last basic + DA × years ÷ 30. Only completed years count.

The 26 stands for working days in a month. Fifteen days' wages are paid for each year of service.

Worked example

Last basic + DA ₹50,000 a month, service 10 years 7 months.

• Covered: 7 months is over 6, so service is 11 years. Gratuity = 15 × ₹50,000 × 11 ÷ 26 = ₹3,17,308.
• Not covered: only 10 completed years count. Gratuity = 15 × ₹50,000 × 10 ÷ 30 = ₹2,50,000.

Gratuity table (covered employers)

Covered versus not covered

Basic + DA of ₹50,000, with part years of service:

The covered formula pays more for two reasons. It divides by 26 instead of 30, and it rounds 6 months or more up to a full year.

Who gets gratuity

You generally need 5 years of continuous service with the same employer. Gratuity is based on your last drawn basic + DA, so a raise late in your career lifts the whole amount. With 20 years of service, a final basic + DA of ₹60,000 instead of ₹50,000 adds ₹1,15,385.

Common mistakes

• Using gross or CTC instead of basic + DA. Allowances such as HRA do not count.
• Adding service with a previous employer. Gratuity is worked out separately for each employer.
• Forgetting the rounding rule. If you are covered and close to a 6-month mark, a few weeks can add a full year of gratuity.
• Expecting it every month. Gratuity is paid as one lumpsum when you leave.

How gratuity is taxed

• Government employees: fully exempt.
• Private employees: exempt up to ₹20 lakh. Anything above is taxed as salary.

For example, a last basic + DA of ₹1.5 lakh and 30 years of service gives ₹26 lakh. Of that, ₹20 lakh is exempt and ₹6 lakh is taxable.

Gratuity in your CTC

Many employers show gratuity inside your CTC at about 4.81% of basic. It is not paid monthly. You receive it only when you leave after becoming eligible. The salary calculator shows how this lowers your in-hand pay.

Gratuity and leave encashment

Many people get both when they leave. Leave encashment pays for unused earned leave, usually at basic + DA ÷ 30 for each day. With ₹50,000 basic + DA and 60 days of leave, that is ₹1,00,000. Its tax rules are different from gratuity's, so work them out separately.

Work out your own

Enter your basic + DA and service in the gratuity calculator. For unused leave paid out on exit, use the leave encashment calculator.