Employment Details
Minimum 5 years of continuous service required
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Gratuity Amount
Payable on exit after 5+ years
₹0
Last Basic + DA (Monthly)₹0
Years of Service0
Formula Used—
Tax Exemption Limit₹20,00,000
Taxable Gratuity₹0
How is Gratuity Calculated?
Gratuity is a lump sum payment made by an employer to an employee as a token of appreciation for services rendered. It is governed by the Payment of Gratuity Act, 1972 and is applicable to companies with 10 or more employees.
Private Sector (Covered under Gratuity Act):
Gratuity = (Last Basic + DA) × 15/26 × Years of Service
Government / Non-covered employees:
Gratuity = (Last Basic + DA) × 15/30 × Years of Service
Note: Years are rounded to nearest half-year (6+ months = 1 full year)
Eligibility
You must complete a minimum of 5 years of continuous service with the same employer. The 5-year rule is relaxed in cases of death or disability — the family receives gratuity even if service is less than 5 years.
Tax on Gratuity
For private sector employees, gratuity up to ₹20 lakh is fully exempt from income tax. Any amount above ₹20 lakh is taxable. For government employees, the entire gratuity is tax-free regardless of amount.
Frequently Asked Questions
What is the minimum service for gratuity? ⌄
5 years of continuous service with the same employer. However, in case of death or disability, the nominee receives gratuity even if service is less than 5 years.
Is gratuity paid on resignation? ⌄
Yes, gratuity is payable on resignation, retirement, superannuation, or termination — as long as you have completed 5 years of continuous service.
Why is 26 used instead of 30 in the formula? ⌄
For private sector employees covered under the Gratuity Act, 26 represents working days in a month (30 days minus 4 Sundays). This gives a slightly higher payout than the government formula which uses 30.
What is the maximum gratuity tax exemption? ⌄
₹20 lakh for private sector employees (revised from ₹10 lakh). Government employees receive full tax exemption on gratuity regardless of amount.