Gratuity formula
Gratuity = (Last drawn salary × 15 × Years of service) ÷ 26
Where salary = Basic + DA (monthly). The factor 15/26 represents 15 days' wages for each year of service based on a 26-day work month.
Eligibility: Minimum 5 years of continuous service (4 years 240 days is often treated as 5 years by courts).
Gratuity tax rules
| Category | Tax-free limit |
|---|---|
| Government employees | Fully exempt |
| Covered under Gratuity Act | ₹20,00,000 |
| Not covered under Act | ₹20,00,000 (or actual, whichever is lower, with a different formula) |
FAQ
When am I eligible for gratuity?
After completing 5 years of continuous service with the same employer. Applies to organisations with 10+ employees.
Is gratuity paid on resignation?
Yes, if you have completed 5 years. Gratuity is payable on resignation, retirement, death, or disablement — as long as the service threshold is met.
What is the maximum gratuity limit?
The maximum tax-free gratuity under the Act is ₹20,00,000 (as of 2024). Any amount above this is taxable.