Gratuity in India, explained
The five-year rule, why the formula divides by 26 rather than 30, what counts as wages, and the boundary cases that decide whether you are owed anything at all.
Work out your gratuityThe formula, and the twenty-six
For a monthly-rated employee the Payment of Gratuity Act sets fifteen days' wages for every completed year of service, and defines fifteen days' wages as the monthly rate divided by twenty-six, multiplied by fifteen.
Twenty-six, not thirty, because the Act assumes a six-day working week with the seventh unpaid. Calculating on a thirty-day month understates the result by about 15%, and it is the single most common mistake in online gratuity calculations.
What counts as wages
Basic pay plus dearness allowance. Not your gross, and not your cost-to-company. House rent allowance, conveyance, special allowances and bonuses are excluded, which for many salary structures means the figure is calculated on less than half the number on your payslip.
If your employer's gratuity offer looks low, check which figure they used before assuming it is wrong.
The five-year rule, and the part-year rule, are different rules
Eligibility needs five completed years of continuous service. Separately, once you qualify, a part year over six months is rounded up to a whole year for the amount.
Those are different sub-sections doing different jobs, and conflating them is a common error: four years and seven months rounds to five for the calculation, but it is still four completed years for eligibility, so nothing is payable. Courts have held that 240 days in the fifth year can count as a completed year, so if you left in your fifth year it is worth taking advice rather than accepting a refusal.
The five-year requirement is waived entirely where employment ended in death or disablement.
The ceiling
₹20,00,000, notified in March 2018. It is a cap on the statutory entitlement, not on what you can be paid: employers may and often do pay more under a contract or a scheme, and many do for long-serving senior staff.
The cap sits in the notification rather than in the Act itself, precisely so it can be raised without amending the statute. It has been raised before.