What salary components are included in 'wages' for gratuity calculation?

Under Section 2(s) of the Act, 'wages' strictly includes Basic Salary and Dearness Allowance (DA). It expressly excludes bonus, commission, HRA, overtime wages, and all other allowances.

Is gratuity payable on resignation after completing 5 years of service?

Yes. Under Section 4(1)(b) of the Payment of Gratuity Act, gratuity is legally payable on resignation provided the employee has rendered continuous service of not less than 5 years.

What happens if an employee dies or becomes disabled before completing 5 years?

Under the First Proviso to Section 4(1), the mandatory completion of 5 years of continuous service is waived in cases of death or disablement due to accident or disease.

What is the maximum statutory ceiling on gratuity in India?

The statutory maximum ceiling under Section 4(3) of the Payment of Gratuity Act is ₹20,00,000 (₹20 Lakhs), as enhanced by Central Government Notification S.O. 1420(E) dated 29th March 2018.

Statutory Gratuity Payout · Payment of Gratuity Act, 1972 (15/26 Formula)

Statutory Gratuity Payout Calculator

Statutory gratuity computation under Section 4(2) of Payment of Gratuity Act, 1972 (15/26 formula), continuous service rules, and ₹20 Lakh ceiling

Employment & Wage Parameters

Gratuity Payout Form

Establishment / Employee Category *

Last Drawn Basic Salary *

Dearness Allowance (DA)

Section 2(s) Definition: Eligible wages comprise strictly Basic Salary + Dearness Allowance (DA). HRA, bonus, commission, overtime, and allowances are excluded.

Date of Joining *

Date of Exit / Cessation *

Reason for Cessation *

ELIGIBLE FOR GRATUITY (≥ 5 YEARS)15/26 Formula (Sec 4(2))

Estimated Statutory Gratuity

₹4,32,692

Within statutory maximum ceiling

Recognized Service & Wages

10 Completed Years

Eligible Wages (Basic+DA): ₹75,000

Raw 15/26 Amount₹4,32,692

Statutory Ceiling₹20,00,000

Exact Calendar Tenure10Y 0M 0D

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Statutory Computation Steps

1. Eligible Monthly Wages (Section 2(s))

Basic Salary (₹60,000) + Dearness Allowance (₹15,000). Other allowances (HRA, Bonus, Commission, Overtime) are excluded under Section 2(s).

₹75,000

2. Continuous Service Tenure (Section 2A & 4(2))

10 Years, 0 Months, 0 Days — Period of 6 months or less is not counted as an additional year; counted as 10 completed years under Section 4(2).

10 Yrs, 0 Mos, 0 Days (10 Rounded Yrs)

3. Statutory 15/26 Formula (Section 4(2))

(15 × ₹75,000 × 10 Years) ÷ 26 = ₹4,32,692. (Jeewanlal Ltd. v. Appellate Authority (1984) 4 SCC 356).

₹4,32,692

4. Statutory Maximum Ceiling (Section 4(3))

Cap: ₹20,00,000. Raw amount is within statutory ceiling.

₹4,32,692

Governing Statutory Authorities

•Payment of Gratuity Act, 1972 (Act No. 39 of 1972)

•Section 2(s) — Definition of Wages (Basic + Dearness Allowance)

•Section 4(1) — Continuous Service Eligibility (5 Years) & 1st Proviso (Death/Disablement Waiver)

•Section 4(2) — 15/26 Formula for Monthly-Rated Employees

•Section 4(3) — Maximum Statutory Ceiling (₹20,00,000 under Notification S.O. 1420(E))

✓Section 7(3) & 7(3A): Employer must pay gratuity within 30 days from when it becomes payable; simple interest is payable for delayed payment beyond 30 days.

Statutory Framework & Labour Jurisprudence

Core Principles of Payment of Gratuity Act, 1972

Sec 4(2): 15/26 Formula

15 days' wages per completed year divided by 26 working days in a month (Jeewanlal principle).

Sec 4(1): 5-Yr Rule & Waiver

Mandatory 5 years for resignation/retirement; waived completely upon death or disablement.

Sec 4(3): ₹20L Ceiling

Statutory cap of ₹20 Lakhs under S.O. 1420(E); contractual higher terms protected under Sec 4(5).

Sec 4(6): Forfeiture Rules

Permitted strictly for quantified property damage or moral turpitude termination (Jaswant Singh Gill).

Frequently Asked Statutory Questions

Gratuity Payout & Labour Law Guide

Under Section 4(2) of the Payment of Gratuity Act, 1972, gratuity for monthly-rated employees is calculated as: (15 × Last Drawn Monthly Wages × Completed Years of Service) ÷ 26. The divisor 26 represents the standard number of working days in a month (excluding 4 Sundays), as established by the Supreme Court in Jeewanlal Ltd. v. Appellate Authority (1984) 4 SCC 356.

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