How Gratuity is Calculated
The gratuity amount depends upon the tenure of service and last drawn salary. It is calculated according to this formula: Last drawn salary (basic salary plus dearness allowance) X number of completed years of service X 15/26.

According to this formula, the time period of over six months or more is considered as one year.

This means if you have completed five years and seven months of service, the number of years would be considered as six years for calculation of gratuity benefit.

On the other hand, if the service period is five years and five months, for gratuity calculation it will be considered five years.

An employer can however give higher gratuity than the amount under the prescribed formula.

Maximum Amount

For government employees, Rs. 20 lakh is the maximum amount that can be paid as gratuity. The Seventh Pay Commission had recommended increase in the gratuity ceiling to Rs. 20 lakh from the earlier level of Rs. 10 lakh.

The rule applies to these organizations:

According to a statement issued by the government, the Gratuity Payments Act (1972) applies to the organization wherein 10 or more employees work. The main purpose of which is to provide financial security after the retirement of the employees. Often, even before the scheduled time limit for employee retirement, disability or otherwise will be retired for any other reason. In turn, gratuity can be the main source of income.

This is how Gratuity is calculated:

According to law, if an employee works continuously for at least five years in any organization, then the company has to pay a gratuity to it. For every year service, the company has to pay the same amount as 15 days of the final wage.

Salary means Basics Salary, Dearness Allowance and Commissions etc. It is included. Apart from this, if a person works for more than 6 months then his gratuity is considered to be a full year. For example, if a person works continuously for 7 years and 6 months, gratuity will be paid for 8 years.

One month work is counted as 26 days for gratuity calculations. For calculating 15-day wages, the monthly salary is multiplied by 15 by 26 divided by 26. This number is multiplied by the number of years of service and the amount that comes in is paid in gratuity form.

If the employee dies:


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