Gratuity Formula

Finance Formula • Published on July 30, 2026 • Last updated July 30, 2026

Mathematical Equation

$$Gratuity = \frac{15 \times Last\ Drawn\ Salary \times Service\ Years}{26}$$

Variable Definitions

Last Drawn Salary

Basic salary plus Dearness Allowance (DA) for the last month of service

Service Years

Number of years of continuous employment (rounded to nearest year if service > 6 months)

15 / 26

Represents 15 days of salary out of 26 working days in a month

Detailed Explanation

In-Depth Guide

Gratuity is a lump-sum payment made by an employer to an employee as a token of appreciation for services rendered, typically after completing 5 or more years of continuous employment.

How to Calculate: Step-by-Step

1. Identify the last drawn basic salary plus dearness allowance (S). 2. Determine the total years of service (Y). If the fraction of the last year is more than 6 months, round up; otherwise, round down. 3. Multiply the salary by 15, then by the service years, and divide by 26 to get the gratuity amount: Gratuity = (15 * S * Y) / 26.

Worked Calculation Example

Let's calculate the gratuity for an employee with a last drawn salary of INR 50,000 and 10 years of service: - Last Drawn Salary (S) = INR 50,000 - Service Years (Y) = 10 - Gratuity = (15 * 50,000 * 10) / 26 = INR 288,461.54

Common Use Cases

  • Estimating retirement benefits for salaried employees
  • Career planning and evaluation of long-term job compensation

Frequently Asked Questions

Yes, the maximum tax-exempt gratuity amount under the Payment of Gratuity Act is INR 20 Lakhs.

Generally, gratuity is only payable after completing 5 years of continuous service, except in cases of death or disablement.

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