How to Calculate Gratuity & Its Tax Exemption Limit (2026)

Gratuity is a monetary benefit provided by an employer to an employee in recognition of their long-term service to the organization. It is governed by the Payment of Gratuity Act, 1972, and is typically paid at the time of retirement, resignation, or termination after a minimum of 5 years of continuous employment.

For employees covered under the Act, the formula is:

Gratuity = (Last Drawn Basic + DA) × (15/26) × Years of Service

Here, '15' represents 15 days of salary, and '26' represents the number of working days in a month. For the purpose of calculation, a period of more than 6 months is rounded up to the next year (e.g., 5 years and 7 months is treated as 6 years).