Gratuity Formula in India: 15/26 Rule, Eligibility & ₹20 Lakh Exemption
Gratuity is a statutory monetary benefit provided by employers in recognition of continuous, dedicated service for 5 or more years.
The 15/26 Gratuity Formula Explained
Under the Payment of Gratuity Act, the statutory formula is:
Gratuity = (15 × Last Drawn Basic Salary × Completed Years of Service) / 26
Why divide by 26? The law assumes 26 working days in a month, excluding 4 Sundays.
Any service period exceeding 6 months in the final year is rounded up to the next full year.
Key Practical Takeaways:
Gratuity Payout Examples at Different Service Milestones
| Completed Years of Service | Last Drawn Basic Salary | Gratuity Amount Payable | Tax Status |
|---|---|---|---|
| 5 Years | ₹50,000 | ₹1,44,231 | 100% Tax Free |
| 10 Years | ₹80,000 | ₹4,61,538 | 100% Tax Free |
| 15 Years | ₹1,20,000 | ₹10,38,462 | 100% Tax Free |
| 25 Years | ₹1,50,000 | ₹21,63,462 | ₹20 Lakhs Free, ₹1.63L Taxable |
Common Questions on This Topic
Does resignation count towards gratuity eligibility?
Yes. As long as you have completed 5 continuous years with the company, you are fully eligible for gratuity upon resignation.
Interactive Calculators for This Guide
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