Gratuity formula
For employers covered under the Payment of Gratuity Act:
Gratuity = Last drawn basic + DA × 15 × Years of service ÷ 26
Here, 15 represents 15 days' wages for each year and 26 is the number of working days in a month. Service of more than 6 months in the final year is rounded up to a full year.
For employers not covered by the Act, the divisor is 30 and only completed years count.
Who is eligible?
- Generally after 5 years of continuous service with the same employer.
- The 5-year condition doesn't apply on death or disablement.
- Under India's new labour codes, fixed-term employees can become eligible after one year of service. Check how your employer applies the current rules.
Is gratuity taxable?
For government employees, gratuity is fully tax-free. For private-sector employees, gratuity is exempt up to the limit set under section 10(10) — currently ₹20 lakh over your career — and any amount above that is taxed as salary.
See gratuity at a glance for common salaries in the gratuity table.