Gratuity is a statutory benefit for employees who complete minimum service. It is a lump-sum thank-you payment from employer when you leave after eligible years — resignation, retirement or superannuation.
Eligibility (Payment of Gratuity Act)
- Minimum 5 years continuous service (exceptions exist for death/disablement)
- Applies to establishments with 10+ employees (coverage rules apply)
- Calculated on last drawn basic salary + dearness allowance
Gratuity formula (covered employees)
Gratuity = (Last drawn salary × 15 × Years of service) / 26
- 15 = 15 days wages per completed year
- 26 = working days in a month as per Act
- Fraction of year above 6 months counts as full year
Example
- Last drawn basic + DA: ₹50,000/month
- Years of service: 10 years
- Gratuity ≈ (50,000 × 15 × 10) / 26 = ₹2,88,462
Tax exemption up to statutory limit applies under Income Tax Act — check current notified ceiling.
When gratuity is paid
- On retirement or resignation after 5 years
- On death or disablement (paid to nominee)
- On termination after eligible service
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FAQ
Is gratuity taxable? Exempt up to limit under Section 10(10); excess is taxable.
Left before 5 years? Usually no gratuity under Act unless special circumstances apply.
Disclaimer: Rules vary for government employees and specific contracts. Verify with HR.