Calculate the gratuity you are owed
₹2,01,923
Gratuity payable
7 years
Service counted
Over six months rounds up to a full year
Yes
Eligible
Gratuity is money your employer owes you for length of service, and the formula catches people out twice. It uses fifteen days' pay for every completed year — but against a twenty-six day working month, not thirty. And service is rounded to the nearest year, so six months and a day counts as a full year while five months counts as nothing. This applies both rules, checks the five-year eligibility threshold, and caps the result at the statutory ₹20 lakh.
The two rules that change the answer
Fifteen days' wages for each completed year sounds simple until you ask what a day's wage is. The Act answers it as monthly salary divided by twenty-six, on the reasoning that a worker is paid for twenty-six days of actual work each month. Using thirty instead — as many online calculators do — understates gratuity by about thirteen percent, which on ten years of service at ₹50,000 is a difference of nearly ₹45,000. The second rule is rounding: service is taken to the nearest whole year, so 7 years 7 months counts as 8, while 7 years 5 months counts as 7.
Why the figure looks small next to your CTC
Gratuity is calculated on basic plus dearness allowance, not on total compensation. In many private salary structures basic is only 35 to 50 percent of CTC, so a person on ₹15 lakh a year may have a basic of ₹6 lakh, and the gratuity follows that smaller number. This is also why two people with identical CTC can receive very different gratuity — it depends entirely on how their employers split the package.
The ceiling and the tax line
The Act caps gratuity at ₹20 lakh, raised from ₹10 lakh in 2018. The same figure is the lifetime tax exemption limit, and it applies across employers rather than per job — so gratuity received from an earlier employer counts against it. Long-serving senior employees can hit the cap, at which point additional years add nothing, and anything an employer pays above the statutory amount is taxable in full.
Frequently asked questions
- Why is the formula divided by 26 and not 30?
- The Act treats a month as twenty-six working days, excluding the four weekly offs. Dividing by 30 gives a figure roughly 13% lower, which is the single most common error in gratuity estimates.
- Do I need five years to qualify?
- Normally yes — five years of continuous service. The exception is death or disablement, where gratuity is payable regardless of how long you worked.
- Does four years and seven months count as five?
- No. Rounding applies to completed years within eligibility, not to the eligibility threshold itself. Several court rulings have treated four years and 240 days as qualifying, but this is disputed and employers differ.
- Which part of my salary is used?
- Basic plus dearness allowance only — the last drawn figure. HRA, bonuses, overtime and other allowances are excluded, which is why the result is usually far lower than people expect from their CTC.
- Is gratuity taxable?
- Up to ₹20 lakh is exempt for employees covered by the Act. Anything above that is taxed as income. Government employees receive the whole amount tax-free.
- What if my employer has fewer than ten staff?
- The Act applies to establishments with ten or more employees. Smaller employers may still pay gratuity voluntarily, and then the divisor is usually 30 rather than 26.
- When must it be paid?
- Within thirty days of becoming payable. Beyond that, the employer owes simple interest on the delayed amount.