How is gratuity calculated in India?

Gratuity is 15 days of your last drawn basic plus DA for every completed year of service, using a 26-day month — so 15/26 × basic+DA × years, capped at ₹20,00,000. On ₹50,000 of basic+DA after 10 years that is ₹2,88,462. You must complete five years to qualify at all.

The formula

Under the Payment of Gratuity Act 1972 the calculation is 15 days of pay for each year of service, where a month is treated as 26 working days rather than 30. The pay in question is your LAST DRAWN basic salary plus dearness allowance — not gross, and not CTC.

That distinction is where most overestimates come from. Basic is often 40–50% of gross, so computing gratuity on your full salary roughly doubles the answer. The figure the Act cares about is the one on the "Basic" line of your payslip.

gratuity = (15 ÷ 26) × last drawn (basic + DA) × completed years

Worked examples

At ₹50,000 of monthly basic plus DA: five years gives ₹1,44,231, ten years ₹2,88,462, and twenty years ₹5,76,923. At ₹80,000 after fifteen years it is ₹6,92,308. At ₹1,00,000 after twenty-five years, ₹14,42,308.

It scales in a straight line with both inputs, because nothing in the formula compounds — double the years or double the basic and the payment doubles. That is worth knowing because gratuity is often imagined as growing faster the longer you stay. It does not.

The five-year rule, and the rounding trap

You must complete five years of continuous service before any gratuity is payable. Below that the entitlement is zero, whatever the arithmetic would otherwise produce. The exceptions are death and disablement, where the five-year condition does not apply.

Separately, once you are past five years, a part-year of six months or more counts as a full year. Those two rules are frequently merged into one, and merging them is wrong in a way that costs money: at four years and seven months your service rounds up to five years for the formula, and you still receive nothing, because eligibility was never reached in the first place.

So a leaver at 4 years 7 months and a leaver at 4 years 5 months get the same amount — zero. The rounding only ever applies after the five-year gate has been passed.

4y 7m → rounds to 5 counted years, but not eligible → ₹0

The ceiling

Gratuity under the Act is capped at ₹20,00,000. On ₹1,50,000 of basic plus DA after thirty years the formula gives ₹25,96,154, and the payment is ₹20,00,000 — the excess is simply not payable under the Act.

An employer may pay more than the Act requires as a matter of its own policy, and some do. That is a contractual question rather than a statutory one, and the tax treatment of anything above the statutory entitlement differs, which is worth checking against your own offer letter rather than assuming.

What this does not cover

This is the calculation under the Payment of Gratuity Act for an employee it covers. It does not model the tax treatment of the amount received, which depends on whether you are a government employee and on exemption limits, nor the different basis some establishments outside the Act use.

Continuous service has a statutory meaning that can include certain absences, and disputes about it turn on facts a calculator cannot see. If your date of joining, your notice period or a break in service is what decides your figure, that is a question for your employer's HR or a professional rather than an estimate.