Gratuity Calculation

Salary & HR

Gratuity is a retirement benefit paid by employer on resignation, retirement, or death after minimum 5 years of service. The formula uses last drawn basic salary plus Dearness Allowance, with different calculations for employees covered and not covered under the Payment of Gratuity Act.

In detail

Covered under Payment of Gratuity Act (organisations with 10+ employees):nGratuity = (Basic + DA) x 15/26 x Completed yearsn15 = 15 working days per yearn26 = working days per monthnnNot covered:nGratuity = (Basic + DA) x 15/30 x Completed yearsnnMaximum tax-free gratuity: Rs 20 lakh (private sector). Government employees: unlimited exemption.nnPart years: if you have completed X years and Y months, years above 6 months count as full year for gratuity calculation.

Formula

Covered: Gratuity = (Basic + DA) / 26 x 15 x Years of servicenNot covered: Gratuity = (Basic + DA) / 30 x 15 x YearsnTax-free limit: Rs 20 lakh for private sector employees

Real-life example

🇮🇳 India example

Priya: 14 years 8 months service (rounds to 15 years), basic Rs 70,000 + DA Rs 0 (private sector). Gratuity = (Rs 70,000/26) x 15 x 15 = Rs 2,692 x 15 x 15 = Rs 6,06,730. Below Rs 20L limit: completely tax-free. She should verify her company's policy and collect from HR within 30 days of leaving.

Frequently asked questions

If I leave a job after exactly 4 years 8 months, am I eligible for gratuity? ▼

4 years 8 months = 56 months. The 8 months rounds up to 1 year (above 6 months), so completed service = 5 years. YES, eligible for gratuity. If it were 4 years 4 months: rounds down to 4 years, NOT eligible. The 5-year minimum is met by 4 years + 6 months+1 day.