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Calculate your company severance payout accurately. Discover how the '15/26' formula works, check if you breach the massive ₹20L tax-free limit, and learn the 4-year legal hack.
Do not include HRA, bonuses, or special allowances. Use only Basic + Dearness Allowance.
A fraction of a year exceeding 6 months is generally rounded up to 1 full year.
Severance Pay Guaranteed by the Govt of India
Govt Tax-Free Limit
₹20,00,000
Shielded from Income Tax
Taxable Gratuity
₹0
Added to your salary slab
Companies covered under the Payment of Gratuity Act, 1972 must rigidly abide by a 15-day salary calculation for every completed year of service.
Why divide by 26 instead of 30? The labor court assumes 4 Sundays in a month, computing exactly 26 actual working days to extract your true "Daily Wage".
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Book Free ConsultationGratuity is a statutory retirement benefit paid by the employer to an employee who has rendered continuous service for 5+ years. It's governed by the Payment of Gratuity Act, 1972, and is a legally enforceable right — not a bonus. Understanding the formula, eligibility, and tax treatment can mean the difference between ₹0 and ₹20+ Lakhs.
15
WHY 15?
The government considers 15 days' wages per year of service as a fair retirement benefit. This is half a month's salary for each year worked.
26
WHY 26?
A month has ~30 days, but only 26 are working days (excluding 4 Sundays). So '15 days' wages' is calculated as 15/26th of monthly salary.
6mo
ROUNDING
If you work 7Y 7M, years = 8. If you work 7Y 4M, years = 7. The fraction is rounded UP if it exceeds 6 months.
* For companies NOT covered under the Gratuity Act, use 30 instead of 26 in the denominator. This gives a slightly lower amount.
If an HR tries to fire you at 4.8 years to illegally avoid paying Gratuity, the Madras High Court has established a precedent: 4 years and 240 continuous working days in the 5th year legally qualifies as a 'Completed 5th Year'. You win the payout.
If you work for 6 Years and 7 Months - your Gratuity is mathematically multiplied by 7 Years. Any fraction exceeding 6 months is violently rounded up to an entire full year, extracting drastically more money from the company.
Rahul, 31, resigning after 7 years 8 months. Last drawn Basic + DA = ₹85,000/month
💡 Rahul gets ₹3.92L fully tax-free in addition to his final settlement. If he'd left at 4 years 11 months, he'd have received ₹0.
Mrs. Kapoor, 58, retiring after 28 years. Last drawn Basic + DA = ₹4,50,000/month
💡 Despite receiving ₹72.69L gratuity, Mrs. Kapoor pays ~₹16.5L in taxes on the excess above ₹20L. Still, a massive retirement windfall.
Late Mr. Singh, 42, passed after 3 years 2 months at a manufacturing unit. Basic + DA = ₹22,000/month
💡 Despite not completing 5 years, Mr. Singh's family receives ₹38,077 — a critical safety net. The Act explicitly protects families in death/disablement cases.
Governing Law: Payment of Gratuity Act, 1972 (Central Act No. 39 of 1972). Applies to every factory, mine, oilfield, plantation, port, railway, and every establishment with 10+ employees.
Gratuity Insurance: Under Section 4A, every employer is mandated to obtain insurance for their gratuity liability from LIC or any approved insurer, OR establish an approved Gratuity Fund. Violation attracts imprisonment up to 1 year or fine up to ₹10,000.
New Labour Codes: The Code on Social Security, 2020 (once notified) proposes to extend gratuity eligibility to gig workers and platform workers. It also proposes proportionate gratuity for fixed-term employees even if service is less than 5 years. These provisions are pending central notification.
Disclaimer: Gratuity calculations are based on the Payment of Gratuity Act, 1972 and Section 10(10) of the Income Tax Act. Tax exemption limits (₹20L) are subject to changes via Finance Act amendments. For government employees, separate rules under CCS (Pension) Rules apply.
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