How is Gratuity Calculated in India?
Gratuity is a financial benefit provided by an employer to an employee for rendering continuous service for at least 5 years. It is governed by the Payment of Gratuity Act, 1972.
The Gratuity Formula
For employees covered under the Gratuity Act, the calculation is extremely standardized:
Gratuity = (15 × Last Drawn Basic Salary × Tenure) / 26
- 15: Represents 15 days of wages for every completed year of service.
- 26: Represents the number of working days in a month.
- Tenure: Total completed years. If you've worked for 5 years and 7 months, the tenure is rounded up to 6 years. If it's 5 years and 4 months, it is rounded down to 5 years.
Our Gratuity Calculator automatically applies the rounding rules to give you your exact tax-free gratuity payout figure!