Gratuity formula: 15/26 rule, 5 years and the 1-year rule

The gratuity formula for an employer covered by the law is last monthly wages × 15 × years of service ÷ 26. Wages means basic pay plus dearness allowance (DA). It pays 15 days’ wages for each year, counting a month as 26 working days.

The formula, step by step

Gratuity = last monthly (basic + DA) × 15 × completed years ÷ 26

1. Take your last drawn basic pay plus DA. Under the labour codes, if allowances excluded from wages are more than half of your pay, the excess is added back to wages, which can raise gratuity.
2. Count years of service. A final part-year of more than six months counts as a full year.
3. Multiply by 15 and divide by 26.

Worked examples

Who gets gratuity

• Permanent employees: after 5 years of continuous service.
• Fixed-term employees: after 1 year, from 21 November 2025, when the four labour codes came into force.
• On death or disablement: payable whatever the length of service.
• An employer’s own policy can pay more than the legal minimum.

Tax on gratuity

Government employees’ gratuity is fully tax-free. For private-sector employees, up to ₹20 lakh over a whole career is tax-free; any excess is taxed as salary. The tax rule still uses basic + DA, even where the labour-code wage definition gives a higher gratuity, so check the taxable part with your employer.

How to use the gratuity calculator

1. Enter your last monthly basic + DA.
2. Enter years and months of service.
3. Choose whether your employer is covered and whether you are permanent or fixed-term.
4. Read the gratuity, the years counted and the tax-free part.

For your pay details, make a salary slip. Central government staff tracking DA can use the DA arrears calculator.