Last updated: 2026-10-21
Gratuity formula
Gratuity = 15 × last salary × years of service ÷ 26
- Last salary = last drawn basic + DA (monthly).
- For employers covered by the Act, a part-year of 6 months or more counts as a full year.
- If your employer isn't covered, it's 15 ÷ 30 and only completed years count.
Example: basic + DA of ₹50,000 and 10 years 7 months of service: 15 × 50,000 × 11 ÷ 26 = ₹3,17,308.
Tax on gratuity
For private sector employees, gratuity up to ₹20 lakh in a lifetime is tax-free. Government employees' gratuity is fully tax-free. Anything above the limit is added to your income.
Frequently asked questions
Do I get gratuity before 5 years?
Usually not. 5 years of continuous service is needed, and courts have accepted 4 years 240 days in many cases. The 5-year rule doesn't apply on death or disability.
Is there a maximum gratuity?
Under the Payment of Gratuity Act, the maximum payable is ₹20 lakh. Employers can choose to pay more.
Is gratuity part of my CTC?
Many companies include it in CTC (about 4.81% of basic), even though you only receive it after 5 years.