Gratuity Act applies to organizations with >10 employees
≥6 months rounded to 1 year
Gratuity Amount
₹
After 10 years 6 months
Calculation Details
- • Last Drawn Salary: ₹60,000
- • Divisor: 26 days
- • Service Years (rounded): 11 years
- • Formula: (15 × Salary × Years) / 26
- • Maximum: ₹20,00,000
About Gratuity
Gratuity is a lump sum payment made by an employer to an employee as a token of appreciation for services rendered. Under the Payment of Gratuity Act, 1972, it is mandatory for organizations with 10 or more employees.
Eligibility
- Minimum 5 years of continuous service (waived in case of death/disability)
- Resignation, retirement, death, or disablement/termination
- Applicable to full-time employees only
Tax Rules
- Gratuity up to ₹20 lakh is tax-free (Section 10(10) of Income Tax Act)
- Amount exceeding ₹20 lakh is taxable as per your income tax slab
- For government employees, entire gratuity is tax-free
Government Employees
Central government retirement gratuity follows the CCS (Pension) Rules, 2021: one-fourth of emoluments (basic pay + DA) for each completed six-monthly period of service. Three months or more counts as one half-year. The amount cannot exceed 16.5 times emoluments, and the payable ceiling is ₹25 lakh. The whole amount is tax-free.
Example
Basic ₹50,000 and DA ₹10,000 for 10 years 6 months: private (10+ employees) gratuity is ₹3,80,769. The same inputs for a government employee use 21 half-years and come to ₹3,15,000.
Updated: October 2026
Note: Last drawn salary is Basic + DA. Private employees covered by the Act are capped at ₹20 lakh. Government retirement gratuity is capped at ₹25 lakh from 1 January 2024.
Source: Payment of Gratuity Act, 1972; CCS (Pension) Rules, 2021
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Frequently Asked Questions
What is gratuity and who is eligible?
Gratuity is a lump sum payment by an employer to an employee as appreciation for services. Under the Payment of Gratuity Act 1972, it's mandatory for organizations with 10+ employees. Eligibility: minimum 5 years of continuous service (waived in case of death/disability). Applies on resignation, retirement, death, disablement, or termination.
How is gratuity calculated?
For employees covered under the Act (10+ employees): Gratuity = (15 × Last Drawn Salary × Years of Service) / 26. Last Drawn Salary = Basic + DA. Years are rounded: ≥6 months counted as 1 year. Maximum limit: ₹20 lakh. Private firms with fewer than 10 employees use (15 × Salary × Years) / 30, also capped at ₹20 lakh. Central government retirement gratuity is (Basic + DA) × completed half-years / 4, with 3 months or more counting as one half-year, a maximum of 16.5 times salary, and a ₹25 lakh ceiling.
Is gratuity taxable?
Gratuity up to ₹20 lakh is tax-free under Section 10(10) of Income Tax Act for private sector employees covered under the Gratuity Act. Any amount above ₹20 lakh is taxable as per your income tax slab. For government employees, entire gratuity is tax-free. For non-covered employees (private <10 employees), different rules apply.
Can I get gratuity if I resign before 5 years?
No, under the Gratuity Act, minimum 5 years of continuous service is required. However, this rule is waived if resignation is due to death or disablement. Some employers voluntarily pay gratuity even for <5 years as per company policy, but it's not legally mandated. Check your appointment letter and company HR policy.
When will I receive gratuity after resignation?
The employer must pay gratuity within 30 days of it becoming payable (i.e., 30 days from resignation date, retirement date, or date of termination). If delayed beyond 30 days without valid reason, employer must pay interest on the delayed amount. Apply for gratuity using Form I.
Does gratuity include all salary components?
No. Gratuity is calculated only on Basic Salary + Dearness Allowance (DA). Other allowances like HRA, travel, bonus, commissions are excluded. If your company structure doesn't have DA, gratuity is calculated on basic alone. For government employees, DA is included. Always check your payslip to identify basic + DA components.