Gratuity Calculation in India: Formula and Example
Gratuity is a payment an employer makes to an employee for long service. Here is how the gratuity calculation works, and you can estimate yours with our gratuity calculator.
The formula
For employees covered by the Payment of Gratuity framework, gratuity = last drawn monthly salary × 15 ÷ 26 × years of service. Salary here means basic pay plus dearness allowance. If you are not covered by the Act, the divisor is 30 instead of 26.
How years are counted
If the extra months in your final year are 6 or more, the year is rounded up. Fewer than 6 months are ignored.
Example
Last drawn salary ₹50,000 and 10 years of service: 50,000 × 15 ÷ 26 × 10 = ₹2,88,461.54. With 10 years and 7 months, the service rounds up to 11 years and the result is ₹3,17,307.69. Under the divisor of 30, the 10-year figure would be ₹2,50,000.
Eligibility and limit
Gratuity is generally payable after 5 years of continuous service. Under the new labour codes, fixed-term employees are generally eligible after 1 year, and there is no minimum service on death or disablement. The usual maximum is ₹20 lakh.
Rules and definitions can change, and your contract matters, so confirm the final figure with your employer or HR.
