Salary & Compensation•6 min read•Published: 2025-03-05
Gratuity Calculation: Formula, 15/26 Rule, Eligibility & ₹20L Limit
Gratuity is a statutory monetary benefit provided by employers to employees in recognition of long-term continuous service.
Key Financial Takeaways
- Formula: Gratuity = (15 × Last Drawn Basic + DA × Service Years) / 26.
- Requires minimum 5 years of continuous service with an establishment.
- Statutory maximum tax-free gratuity limit is ₹20,00,000 (20 Lakhs).
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Why 26 Days are Used in the Denominator
The formula divides by 26 because a month is considered to have 26 working days (excluding 4 Sundays). 15 days of salary per year of service are credited.
Frequently Asked Questions
What happens if I work for 4 years and 8 months?
Under judicial precedents, 4 years and 240 days in the 5th year is considered equivalent to 5 years for gratuity eligibility.
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