India Gratuity Calculation 2026: The 15/26 Formula, 5-Year Rule & ₹20 Lakh Cap
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In India, gratuity under the Payment of Gratuity Act rewards long service with a tax-advantaged lump sum.
The formula
(Last drawn salary × 15 × completed years) ÷ 26. Salary means basic + dearness allowance, not your full CTC. The 26 is the assumed working days in a month.
The 5-year rule and rounding
You must complete five years of continuous service (waived on death or disablement). A part-year is rounded up if it exceeds six months, otherwise down.
The ₹20 lakh cap
Gratuity is capped — and tax-free — up to ₹20,00,000.
Worked example
Salary (basic + DA) ₹40,000, 10 years: (40,000 × 15 × 10) ÷ 26 = ₹2,30,769. Well under the cap, so fully tax-free.
Frequently asked questions
How is gratuity calculated in India?
Last drawn salary (basic + dearness allowance) × 15 × completed years ÷ 26. You must complete five years, and a part-year over six months rounds up to a full year.
What is the gratuity eligibility in India?
Five years of continuous service, except in cases of death or disablement where the five-year rule is waived.
Is there a gratuity limit in India?
Yes — gratuity is capped and tax-exempt up to ₹20,00,000 (20 lakh).
Which salary is used for Indian gratuity?
The last drawn basic salary plus dearness allowance — not the full CTC.