What is 15/26 in Gratuity Calculation? The Complete India Guide

Quick Reference: 15/26 Gratuity Formula at a Glance

Understanding the Statutory Gratuity Formula

The Meaning of 15 and 26

Divide your monthly salary by 26 first. This gives you your daily wage as recognised by the Payment of Gratuity Act. Then multiply that daily wage by 15 to get your half-month equivalent for each year served.

Here are four worked examples covering real salary situations:

The reason the law uses 26 and not 30 is deliberate — it gives you credit only for the days you actually worked, not the full calendar month. Using 30 as a divisor would undercount your daily rate by about 13%.

The 5-Year Eligibility Rule

You become eligible for gratuity only after 5 years of continuous service with the same employer.

Two exceptions override this rule:

• Death — The 5-year lock is waived entirely. Gratuity is paid to the nominee or legal heir immediately regardless of tenure.
• Disablement — If an employee becomes disabled due to an accident or disease, the 5-year rule is also waived.

The "4 Years + 240 Days" Legal Precedent

If you resign just before completing your fifth year, you are not automatically shut out. Multiple Indian High Court judgments have held that an employee who has completed 4 years and 240 days in their fifth year qualifies for gratuity.

The 6-Month Rounding Rule for Your Final Year

This is the rule most HR letters never explain clearly. When calculating your years of service, your final (incomplete) year is handled as follows:

• If you have served more than 6 months in your last year, it is rounded up to a full year.
• If you have served 6 months or less, the remaining months are ignored entirely.

So an employee with 7 years and 8 months of service is treated as having served 8 complete years for the gratuity calculation. An employee with 7 years and 4 months is treated as having served 7 complete years.

The difference between 9 years 4 months and 9 years 9 months is ₹28,847 — purely from the rounding rule. Plan your resignation date accordingly.

The New Labour Code (2025)

Under the Code on Social Security, 2020 (not yet fully notified as of Q1 2026), fixed-term contract workers would become eligible for gratuity on a pro-rata basis after just one year of service, not five. Until state governments issue corresponding notifications, the 1972 Act remains operative.

Special Profession Rules: Teachers and Journalists

• Teachers: The Payment of Gratuity Act was amended in 2009 to explicitly include teachers in private educational institutions within its scope. Before this amendment, private school and college teachers were frequently denied gratuity on the grounds that they were not covered. If you are a private school or college teacher and your employer refuses gratuity citing the pre-2009 position, they are legally wrong.
• Journalists: Working journalists covered under the Working Journalists and Other Newspaper Employees (Conditions of Service and Miscellaneous Provisions) Act, 1955 have their own gratuity provisions, which historically differed from the 1972 Act in terms of eligibility thresholds.

How to Determine Your "Last Drawn Salary"

Basic Pay + Dearness Allowance (DA): What's In and What's Out

The law is strict: only Basic Pay + DA goes into the gratuity formula. The following are legally excluded:

Most private sector employees in India receive zero DA (it is more common in government and PSU jobs). If your CTC has no DA component, your gratuity base is your Basic Pay alone.

Edge Case: Daily-Wage and Piece-Rate Workers

For workers paid on a daily or piece-rate basis (common in construction, manufacturing, seasonal agriculture), the gratuity formula uses a different method:

The 50% CTC Wage Floor Rule

Some employers structure salary with an artificially low Basic Pay (say 20% of CTC) and inflate allowances to reduce gratuity and PF liability. The Code on Wages, 2019 addresses this by mandating that wages (which includes Basic Pay) cannot fall below 50% of total CTC.

If your Basic Pay is below 50% of your CTC, the gratuity formula should technically apply to the 50% floor — not the artificially suppressed Basic. Verify this with your HR team before accepting any gratuity offer.

How Leaves and Job Changes Impact Your Gratuity

The Impact of Leave Without Pay (LWP), Maternity Leave, and Sabbaticals

This is one of the most misunderstood areas of Indian gratuity law.

Legally approved leaves — including earned leave, sick leave, and maternity leave — are counted as continuous service. They do not interrupt your 5-year clock and are not subtracted from your payout calculation.

Leave Without Pay (LWP) is different. Authorised LWP (where the employer formally approves the absence) generally counts as continuous service and does not reduce your payout. Unauthorised LWP, however, can be excluded from your tenure calculation — meaning it may subtract days from the working-days count used to determine your eligibility year.

A practical rule: if the absence was in your offer letter, contract, or formally approved in writing, it counts. If you vanished without approval, it may not.

Sabbaticals are not explicitly addressed in the 1972 Act. Their treatment depends entirely on what your employment contract or company policy states. If you took an extended unpaid sabbatical without a formal separation, consult HR for written confirmation that your service was not broken.

Gratuity vs. EPF: Is Gratuity Transferable?

No. Gratuity is not transferable.

This confuses many employees who are used to carrying their EPF (Employee Provident Fund) balance from employer to employer via the UAN system. Gratuity does not work that way.

Each time you change employers and complete 5 years, you receive a fresh gratuity payout from that employer. There is no cumulative gratuity account that follows you through your career.

Dual Employment and Part-Time Workers

If you hold two part-time jobs simultaneously and complete 5 years at each, you are eligible to claim gratuity from both employers independently — provided each employment relationship meets the Act's criteria.

Part-time employees are generally covered by the Payment of Gratuity Act if their employer otherwise qualifies (10+ employees). However, calculating "years of service" for a part-time arrangement based on days worked vs. calendar years is contested.

Gratuity Taxation Limits and Nominee Payouts

The ₹20 Lakh Tax-Free Limit

For private sector employees, gratuity received on retirement, resignation, or superannuation is exempt from income tax up to ₹20 lakh under Section 10(10)(ii) of the Income Tax Act.

The amount taxable (if gratuity exceeds ₹20 lakh) is the excess above the exempt limit, taxed as "income from salary" in the year of receipt.

For Central Government employees, the limit is ₹25 lakh under Section 10(10)(i).

Taxation for Nominees in the Event of Death

When an employee dies before completing 5 years (or at any point during service), the gratuity is paid to the registered nominee or legal heir. The 5-year eligibility requirement is completely waived.

This payout is fully exempt from income tax in the hands of the nominee, regardless of the amount. The income tax exemption limit (₹20 lakh) does not cap the nominee's receipt — the entire sum is tax-free.

This distinction matters significantly for families in estate planning conversations.

What to Do If Your Employer Delays or Refuses Gratuity

Statutory Timelines and Interest Penalties

Your employer must pay gratuity within 30 days of it becoming payable (i.e., from the date of resignation, retirement, or death).

If payment is delayed beyond 30 days without reasonable cause, the employer is liable to pay simple interest at the rate specified by the government from the due date until actual payment.

Legal Recourse and Grievance Redressal: Step by Step

If your employer refuses or significantly delays payment:

The Employer's Perspective: Compliance and Accounting

The 4.81% CTC Provision Explained

Companies provision roughly 4.81% of an employee's basic salary annually to fund future gratuity liability. This is not a deduction from your salary — it stays with the employer.

The math: (15 ÷ 26) × (1 ÷ 12 months) = 0.04808... ≈ 4.81% per month of basic.

Actuarial Valuations (AS 15 / Ind AS 19)

All Indian companies meeting certain size thresholds are required to commission an actuarial valuation of their gratuity liability under Accounting Standard 15 (AS 15) or Ind AS 19 (for companies reporting under Indian Accounting Standards).

This valuation projects the present value of all future gratuity obligations, using assumptions about salary growth, employee attrition rates, and discount rates. HR professionals and finance teams handling compliance can reference the Institute of Actuaries of India for empanelled actuaries.

When the Gratuity Formula Does NOT Apply to You

This formula applies specifically to employees covered under the Payment of Gratuity Act, 1972 — that is, workers in establishments with 10 or more employees, working in India, in industries covered by the Act.

You are NOT protected by this formula if:

• You work in an establishment with fewer than 10 employees and your employer has not voluntarily adopted the Act.
• You are an independent contractor or freelancer rather than an employee.
• Your employer is a domestic household (e.g., household cook or driver) — domestic workers are generally outside the Act's scope.
• You are on a probationary period that has not converted to confirmed employment, depending on your HR policy.

Even if the Act does not apply, your employer may still offer ex-gratia (a goodwill gratuity payment not mandated by law). Ex-gratia does not follow the 15/26 formula and is fully taxable.

Covered Employers (15/26) vs. Non-Covered Employers (15/30)

This is a mathematical distinction that directly affects your payout size and that most articles skip.

Employers covered under the Payment of Gratuity Act (10+ employees, in applicable industries) must use the ÷ 26 divisor. This gives you a higher daily wage rate and therefore a larger gratuity.

Employers not covered under the Act — such as small shops, domestic employers, or establishments below the threshold — are not legally required to pay gratuity at all. If they choose to pay voluntarily, many use a ÷ 30 divisor (full calendar days), which produces a smaller payout.