Gratuity Formula
For employees covered by the Payment of Gratuity Act, gratuity is calculated as:
Gratuity = (15 × Last Salary × Years of Service) ÷ 26
Here, last salary is your last drawn basic pay plus dearness allowance (DA), and 26 represents the working days in a month. Service of 6 months or more is rounded up to a full year.
Who Is Eligible for Gratuity?
- You must complete 5 continuous years of service with the same employer.
- The 5-year rule is waived in case of death or disablement.
- It applies to establishments with 10 or more employees.
Gratuity and Tax
Gratuity is tax-exempt up to ₹20 lakh in your lifetime for covered employees. Anything above this limit is taxed as per your income slab.
Frequently Asked Questions
When is gratuity paid?
Gratuity is paid on resignation, retirement, or termination after 5 years of service, and to nominees in case of death.
Does my company have to pay gratuity?
Yes, if it employs 10 or more people and you have completed 5 years of continuous service.