How Gratuity Is Calculated in India: The 15/26 Formula Explained

The formula, piece by piece

The fraction 15/26 is 15 days’ wages for each year of service, with a month counted as 26 working days — the four Sundays excluded. The salary is the wage last drawn: basic pay plus dearness allowance. Not gross salary, not CTC, and not including house rent allowance or other allowances. Using CTC is the single most common error, and it overstates the figure, sometimes sharply.

The years are completed years of continuous service, with the rounding rule applied to the remainder. The Act applies to establishments with 10 or more employees; smaller establishments and employers outside its coverage follow their own schemes, which is where the 15/30 variant comes in.

The 6-month rounding rule — and how it can create eligibility

Service is counted in completed years, and if the remainder beyond completed years exceeds 6 months, it counts as a full year. So 22 years and 8 months counts as 23 years, while 22 years and 5 months counts as 22 years. Exactly 6 months does not round up; more than 6 months does.

The rule has a sharp edge most guides miss: it can create eligibility itself. Four years and 7 months rounds up to 5 years — so an employee who has not literally completed 5 years can still qualify, because the counted service reaches 5. Conversely, 4 years and 5 months stays at 4 and does not qualify.

Covered vs not covered: 15/26 vs 15/30

For establishments covered by the Act, the divisor is 26 and the 6-month rounding applies. For establishments not covered, the customary formula uses a divisor of 30 — a full calendar month — and part-years are usually ignored rather than rounded. The same salary and service therefore give different figures: at ₹60,000 and 10 years, the Act formula gives ₹3,46,154 while the 15/30 formula gives ₹3,00,000, a difference of ₹46,154.

Which formula applies to you depends on whether your employer is covered by the Act, not on which gives more. If you are unsure, the establishment’s coverage — 10 or more employees — is the first thing to check.

Worked examples

Salary ₹60,000, service exactly 10 years: (15 ÷ 26) × 60,000 × 10 = ₹3,46,154. Salary ₹1,20,000, service 22 years and 8 months: the counted service is 23 years, so (15 ÷ 26) × 1,20,000 × 23 = ₹15,92,308. Salary ₹3,00,000, service 30 years: the formula gives ₹51,92,308, which exceeds the ceiling, so the gratuity payable under the Act is ₹20,00,000.

A service-measurement example: joined 15 March 2016, leaving 20 October 2026 — exact service 10 years, 7 months and 5 days. The 7 months exceed 6, so the counted service is 11 years; at ₹60,000 the gratuity is ₹3,80,769. And a non-covered example: ₹60,000, 10 years and 8 months — part-years ignored, so (15 ÷ 30) × 60,000 × 10 = ₹3,00,000.

The ₹20 lakh ceiling is a lifetime limit

Under the 2018 amendment, gratuity under the Act cannot exceed ₹20,00,000. If the formula produces more, the payable figure is the ceiling. The calculator shows the before-cap amount alongside, so the amount removed by the ceiling is visible rather than hidden.

Less well known: the ₹20 lakh tax exemption is a lifetime limit across all employers, not a fresh allowance per job. If you already received ₹5 lakh tax-free from one employer, the remaining exemption for future gratuity is ₹15 lakh. Keep records of earlier payouts for your tax return — Form 16 shows the exempt and taxable split. Government employees are the exception: their gratuity is fully exempt with no upper limit.

What changed in November 2025

From 21 November 2025, the Code on Social Security extends gratuity eligibility to fixed-term employees after one year of service, on a pro rata basis — permanent employees still need five years (death and disablement excepted). The codes also widen the definition of wages: if allowances excluded from wages exceed 50% of total pay, the excess is added back to the wage base. Where basic plus DA is a small share of salary, that raises the gratuity figure — in one published example, a ₹1 lakh salary with ₹35,000 basic sees gratuity rise about 43% over ten years.

These changes are recent and their application is still settling, so treat them as the direction of the law and confirm the position with your employer or adviser for a specific case. The calculator on this site implements the Act’s formula; the wage-definition change affects which salary figure you enter.

When it must be paid

The employer must pay gratuity within 30 days of it becoming due. Delay beyond that attracts interest, and disputes go to the controlling authority appointed under the Act. If your gratuity is delayed, the first step is a written application to the employer, followed by the controlling authority if payment still does not come.

Common mistakes to avoid

Using gross salary or CTC instead of basic plus dearness allowance; counting calendar years instead of completed years; ignoring the 6-month rule in either direction; forgetting the ceiling on large salaries; treating the ₹20 lakh exemption as per-employer instead of lifetime; assuming any resignation before 5 years earns a proportionate gratuity (it generally does not, except for fixed-term employees under the 2025 Code and on death or disablement); and using the 15/26 divisor for a non-covered employer.