Gratuity is a statutory benefit paid to employees in India as a recognition of their long service. Under the Payment of Gratuity Act 1972, every company with 10 or more employees must pay gratuity to eligible employees. Here's everything you need to know.
Gratuity Eligibility
You are eligible for gratuity if: you have completed 5 or more years of continuous service with the same employer AND you are leaving due to resignation, retirement, superannuation, death, or disability. The 5-year rule has a relaxation — if you die or become disabled, gratuity is paid regardless of years served.
Gratuity Formula India
Gratuity = (Last Drawn Basic Salary + DA) × 15/26 × Years of Service
The formula uses 15 days for every completed year of service and 26 working days per month. For example: Last basic ₹50,000/month, 10 years service: Gratuity = ₹50,000 × 15/26 × 10 = ₹2,88,461
Maximum Gratuity Limit
The maximum gratuity payable under the Act is ₹20 lakh (enhanced in 2018 from ₹10 lakh). Companies can pay more than this as ex-gratia, but the tax exemption only applies up to ₹20 lakh. Any gratuity above ₹20 lakh is taxable.
Gratuity Tax Exemption
For government employees, entire gratuity is tax-free. For private sector employees covered under the Payment of Gratuity Act, the tax-free amount is the minimum of:
- Actual gratuity received
- 15 days salary for each completed year (as per formula)
- ₹20,00,000 (statutory limit)
Use our India Gratuity Calculator to get your exact gratuity entitlement instantly.