How Is Gratuity Calculated in India?
Planning a resignation or job switch after years at a company? Decode the statutory 15/26 formula, the 4 years 240 days legal ruling, and tax-free limits.
The Statutory 15/26 Formula
Where 15 is 15 days of wages, 26 is the statutory working days in a month (excluding Sundays), Last Drawn Basic Salary includes Basic + Dearness Allowance (DA), and Years of Service is rounded up if you have worked more than 6 months in the final year (e.g., 6 years 7 months = 7 years).
Gratuity Amounts by Tenure and Basic Salary
| Tenure | Last Drawn Basic | Calculation String | Gratuity Payable | Tax Exemption |
|---|---|---|---|---|
| 5 Years | ₹50,000/mo | (15 × 50,000 × 5) / 26 | ₹1,44,231 | 100% Tax-Free |
| 7 Years | ₹75,000/mo | (15 × 75,000 × 7) / 26 | ₹3,02,885 | 100% Tax-Free |
| 10 Years | ₹1,00,000/mo | (15 × 1,00,000 × 10) / 26 | ₹5,76,923 | 100% Tax-Free |
| 15 Years | ₹1,50,000/mo | (15 × 1,50,000 × 15) / 26 | ₹12,98,077 | 100% Tax-Free |
| 20 Years | ₹2,00,000/mo | (15 × 2,00,000 × 20) / 26 | ₹20,00,000 (Capped) | 100% Tax-Free (₹20L Limit) |
Simulate Gratuity Provision in Your CTC
See how your employer's annual gratuity budget (~4.81% of basic) is structured inside your CTC.
Estimated monthly credit in bank under NEW Tax Regime (FY 2025-26).
Annual CTC distribution
NEW Tax RegimeTax Comparison (New vs. Old Regime)
Budget 2024 revised slabs vs. Old Regime deductions for ₹₹15,00,000 CTC
New Tax Regime
FY 25-26Old Tax Regime
TraditionalFrequently Asked Questions: Gratuity Rules in India
Clear answers to common questions on CTC structure, take-home calculations, Budget 2024 tax slabs, and Section 87A rebate rules.
Why does the gratuity formula divide by 26 instead of 30?
Under Section 4(2) of the Payment of Gratuity Act, 1972, the Supreme Court of India ruled in Jeewanlal Ltd. v. Appellate Authority that monthly wages represent earnings across working days. Because a typical month contains 30 days minus 4 Sundays, the statutory number of working days is codified as 26 days. A half-month wage is calculated as 15 working days out of 26: (15 / 26) × Last Drawn Basic Salary.
What is the 4 years and 240 days rule for gratuity eligibility?
While Section 4(1) states a 5-year requirement, Section 2A defines 'continuous service'. In landmark rulings by the Madras High Court and Supreme Court, an employee who completes 4 years and 240 working days (or 190 days for 5-day work week offices) in the 5th year of service is deemed to have completed 5 continuous years and is legally entitled to full statutory gratuity payout upon resignation.
What happens to the gratuity component in my CTC if I resign before 5 years?
If you leave an employer before completing statutory continuous service (less than 4 years 240 days), the company legally forfeits the gratuity provision budgeted inside your annual CTC (~4.81% of Basic). Employers are not required to refund or pay out this unvested gratuity cash in your Full & Final (FnF) settlement.
Is gratuity payout subject to income tax?
Gratuity received by non-government private sector employees covered under the Payment of Gratuity Act is 100% tax-exempt up to a lifetime ceiling of ₹20,00,000 under Section 10(10). Any excess gratuity received above ₹20 Lakhs is added to your taxable salary income in the year of receipt.