Gratuity Calculation and Eligibility explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
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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