Gratuity Calculation and Eligibility Rules

Gratuity is a lump-sum reward for long service, payable under the Payment of Gratuity Act. Here are the eligibility and calculation rules.

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Labour Laws
Published
August 20, 2026
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Sep 24, 2026
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Last updated: September 2026Verified against: Government sources

Gratuity is a lump-sum reward for long service, payable under the Payment of Gratuity Act. Here are the eligibility and calculation rules.

Eligibility

  • Payable after 5 years of continuous service
  • On resignation, retirement, death or disablement (5-year rule waived for death/disablement)
  • Applies to establishments with 10 or more employees

Calculation

  • Gratuity = last drawn salary × 15/26 × number of completed years
  • Salary = basic + dearness allowance
  • Exempt from tax up to ₹20 lakh

Example

For a last salary of ₹50,000 and 10 years of service: ₹50,000 × 15/26 × 10 ≈ ₹2.88 lakh.

Frequently Asked Questions

Who is eligible for gratuity?

Employees who complete 5 years of continuous service (waived on death/disablement).

How is gratuity calculated?

Last salary × 15/26 × completed years of service.

Is gratuity taxable?

Exempt up to ₹20 lakh; the excess is taxable.

Is gratuity paid on resignation?

Yes, if 5 years of continuous service are completed.

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Quick recapKey facts & short answers

Key Facts About Gratuity Calculation and Eligibility

  • Applies in: All states across India, under the relevant central law.
  • Mode: Mostly online via the official government portal.
  • Typical timeline: Ranges from a few days to a few weeks depending on the case.
  • Non-compliance: May attract penalties, interest or late fees.
  • Expert help: TaxClue completes the entire process end to end for you.

Who is eligible for gratuity?

Employees who complete 5 years of continuous service (waived on death/disablement).

How is gratuity calculated?

Last salary × 15/26 × completed years of service.

Gratuity Calculation and Eligibility: a key compliance topic in Indian tax and corporate law that businesses and individuals must understand to remain compliant.

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Why This Matters

Staying compliant with Indian regulations protects your business from penalties, interest and unnecessary legal trouble. It is always wise to maintain proper records and documentation so that any future scrutiny can be handled smoothly. Rules and thresholds in labour laws are revised periodically, so it helps to review your obligations at the start of each financial year. Professional guidance from a qualified CA, CS or advocate ensures that filings are accurate and submitted well before the due date.

Small businesses and startups especially benefit from setting up a simple compliance calendar to track recurring deadlines. Government portals now allow most applications and filings to be completed online, reducing paperwork and turnaround time. Keeping your PAN, registration certificates and board resolutions organised makes every subsequent filing faster. When in doubt, it is better to seek clarification early rather than risk a notice or a late-filing penalty later.

A clear understanding of the applicable law helps you make confident, well-informed business decisions. TaxClue's experts regularly assist businesses across India with end-to-end labour laws support at transparent, affordable pricing. Timely compliance also improves your credibility with banks, investors and government authorities. Reviewing your obligations with a professional at least once a year keeps your business audit-ready and stress-free.

Staying compliant with Indian regulations protects your business from penalties, interest and unnecessary legal trouble. It is always wise to maintain proper records and documentation so that any future scrutiny can be handled smoothly. Rules and thresholds in labour laws are revised periodically, so it helps to review your obligations at the start of each financial year. Professional guidance from a qualified CA, CS or advocate ensures that filings are accurate and submitted well before the due date.

Small businesses and startups especially benefit from setting up a simple compliance calendar to track recurring deadlines. Government portals now allow most applications and filings to be completed online, reducing paperwork and turnaround time. Keeping your PAN, registration certificates and board resolutions organised makes every subsequent filing faster. When in doubt, it is better to seek clarification early rather than risk a notice or a late-filing penalty later.

A clear understanding of the applicable law helps you make confident, well-informed business decisions. TaxClue's experts regularly assist businesses across India with end-to-end labour laws support at transparent, affordable pricing.

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Disclaimer: This article is for general informational purposes only and does not constitute professional tax, legal or financial advice. Laws, rates and due dates change and can vary by individual case — always verify with the relevant government source (e.g. mca.gov.in, incometax.gov.in) or consult a qualified professional before acting. TaxClue accepts no liability for decisions taken based on this content.

People also ask

Questions, answered

Short, direct answers to the 4 questions readers ask most on this topic.

Employees who complete 5 years of continuous service (waived on death/disablement).

Last salary × 15/26 × completed years of service.

Exempt up to ₹20 lakh; the excess is taxable.

Yes, if 5 years of continuous service are completed.