The formula
Covered under the Payment of Gratuity Act, 1972: Gratuity = last drawn salary × 15 ÷ 26 × years of service. Salary means basic + dearness allowance. 15 is the number of days' wages for each year; 26 is the working days in a month. A part year of more than 6 months counts as a full year.
Not covered under the Act: salary × 15 ÷ 30 × completed years (half a month's average salary for each completed year).
Tax
- Gratuity up to ₹20 lakh is tax-free for private-sector employees covered under the Act. Anything above that is added to your income.
- Government employees' gratuity is fully tax-free.
Common questions
I left after 4 years 8 months — do I get gratuity?
Strictly the Act says 5 years. Several courts have treated 4 years and 240 days as 5 years, and many employers follow that, but it is not automatic.
Does the employer have to pay even if I resign?
Yes. Resignation, retirement, or termination (other than for serious misconduct) all qualify once you cross 5 years. It must be paid within 30 days of leaving.