Money basics3 min read · Updated 21 October 2026
How is gratuity calculated? The 15/26 formula with examples
The gratuity formula in plain words, worked examples in rupees, the 5-year rule, the ₹20 lakh limit and how it differs if your employer is not covered by the Act.
The formula
Gratuity = (last drawn basic + dearness allowance) × 15 ÷ 26 × years of service.
The 26 is the working days in a month, and 15 is the days of pay you earn for each year. So each year of service adds roughly half a month of basic pay.
Worked examples
- Basic ₹50,000, 10 years: 50,000 × 15 ÷ 26 × 10 = ₹2,88,462.
- Basic ₹80,000, 20 years: ₹9,23,077.
- Basic ₹4,00,000, 30 years: the formula gives ₹69,23,077, but the limit of ₹20 lakh applies, so you get ₹20,00,000.
How years are counted
Count completed years. If the last part-year is 6 months or more, it counts as a full year. 9 years and 7 months is paid as 10 years. 9 years and 5 months is paid as 9.
If your employer is not covered
The Act covers organisations with 10 or more staff. If yours is not covered, the usual method uses 30 days instead of 26: basic × 15 ÷ 30 × years. The result is slightly lower. Your appointment letter or HR can confirm which applies.
Common questions
What is the gratuity formula?
Last drawn basic plus DA, times 15 divided by 26, times completed years of service.
Is gratuity taxable?
Gratuity is tax-free up to ₹20 lakh. Check the rule that applies to you if your employer is not covered by the Act.
Does basic include HRA?
No. Only basic pay and dearness allowance count. HRA, bonus and special allowances are left out.