You've worked 7 years at the same company. Your salary is ₹50,000. You resign. How much gratuity do you get? ₹2,89,617. That's not a bonus — it's your legal right. But most employees don't know the formula, and companies sometimes underpay.
The Gratuity Formula
Gratuity = (15 × Last Drawn Basic Salary × Years of Service) ÷ 26
| Variable | What It Means | |----------|--------------| | 15 | 15 days' salary for each year of service | | Last Drawn Basic | Basic + Dearness Allowance (DA) at time of exit | | Years of Service | Completed years (6+ months = 1 year, <6 months = 0) | | 26 | Working days in a month (as per the Act) |
The Trench Truth: 6 months and 1 day of service rounds UP to the next year. 5 years and 11 months rounds to 5 years. This means someone who resigns at 4 years 7 months gets zero gratuity (under 5 years), but someone who resigns at 5 years 1 day gets gratuity for 5 years. That 1 day is worth ₹28,846 (for a ₹50K basic). Always time your resignation after completing a full year milestone.
📊 Diagram: Gratuity Eligibility Timeline
┌──────────────────────────────────────────────────────────────┐
│ GRATUITY: WHEN ARE YOU ELIGIBLE? │
├──────────────────────────────────────────────────────────────┤
│ │
│ 0-5 years: ❌ NOT ELIGIBLE (unless death/disability) │
│ ──────────────────────────────── │
│ │
│ 5+ years: ✅ ELIGIBLE on resignation/retirement │
│ ──────────────────────────────────────────── │
│ │
│ Service Duration Counted As Gratuity Impact │
│ ───────────────── ────────── ───────────── │
│ 5 years 0 months 5 years 5 × 15/26 × basic │
│ 5 years 7 months 6 years 6 × 15/26 × basic (↑1yr) │
│ 9 years 11 months 9 years 9 × 15/26 × basic │
│ 10 years 1 month 10 years 10 × 15/26 × basic │
│ │
│ ⚠️ 7 months = +1 year. 11 months = +0 years. │
│ The rounding is brutal. Plan your exit date. │
│ │
└──────────────────────────────────────────────────────────────┘
Worked Examples
📊 Example 1: ₹30,000 Basic, 8 Years Service
Gratuity = (15 × 30,000 × 8) ÷ 26 = ₹1,38,462
📊 Example 2: ₹50,000 Basic, 12 Years Service
Gratuity = (15 × 50,000 × 12) ÷ 26 = ₹3,46,154
📊 Example 3: ₹1,00,000 Basic, 20 Years Service
Gratuity = (15 × 1,00,000 × 20) ÷ 26 = ₹11,53,846
But wait — there's a maximum cap.
The ₹20 Lakh Cap
The Payment of Gratuity Act caps gratuity at ₹20,00,000 (updated in 2018 from ₹10 lakh).
| Basic Salary | Years | Calculated Gratuity | Actual Gratuity | |-------------|-------|--------------------| ---------------| | ₹30,000 | 8 | ₹1,38,462 | ₹1,38,462 ✅ | | ₹50,000 | 12 | ₹3,46,154 | ₹3,46,154 ✅ | | ₹1,00,000 | 20 | ₹11,53,846 | ₹11,53,846 ✅ | | ₹2,00,000 | 25 | ₹28,84,615 | ₹20,00,000 ❌ Capped | | ₹3,00,000 | 30 | ₹51,92,308 | ₹20,00,000 ❌ Capped |
📊 Gratuity by Salary and Tenure
| Basic/Month | 5 Yrs | 10 Yrs | 15 Yrs | 20 Yrs | 25 Yrs | 30 Yrs | |------------|-------|--------|--------|--------|--------|--------| | ₹20,000 | ₹57,692 | ₹1,15,385 | ₹1,73,077 | ₹2,30,769 | ₹2,88,462 | ₹3,46,154 | | ₹30,000 | ₹86,538 | ₹1,73,077 | ₹2,59,615 | ₹3,46,154 | ₹4,32,692 | ₹5,19,231 | | ₹50,000 | ₹1,44,231 | ₹2,88,462 | ₹4,32,692 | ₹5,76,923 | ₹7,21,154 | ₹8,65,385 | | ₹75,000 | ₹2,16,346 | ₹4,32,692 | ₹6,49,038 | ₹8,65,385 | ₹10,81,731 | ₹12,98,077 | | ₹1,00,000 | ₹2,88,462 | ₹5,76,923 | ₹8,65,385 | ₹11,53,846 | ₹14,42,308 | ₹17,30,769 | | ₹2,00,000 | ₹5,76,923 | ₹11,53,846 | ₹17,30,769 | ₹20,00,000* | ₹20,00,000* | ₹20,00,000* |
*Hit the ₹20 lakh cap
Tax on Gratuity
| Situation | Tax Treatment | |-----------|-------------| | Government employee | Fully exempt — no tax at all | | Non-government employee (covered by Act) | Exempt up to ₹20 lakh | | Non-government employee (NOT covered by Act) | Exempt up to: half-month salary × years of service, or ₹20 lakh, whichever is less | | Death/disablement gratuity | Fully exempt — no limit |
Gratuity for Death/Disablement
If an employee dies or becomes disabled, gratuity is paid regardless of service length — even 1 day counts.
| Service at Death | Gratuity | Max | |-----------------|---------|-----| | <1 year | 2 × basic | ₹20L | | 1-5 years | 6 × basic | ₹20L | | 5-11 years | 12 × basic | ₹20L | | 11-20 years | 20 × basic | ₹20L | | 20+ years | half-month × years | ₹20L |
Key Takeaways
- Gratuity = (15 × Basic × Years) ÷ 26 — simple formula, legal right
- 5 years minimum service required (unless death/disablement)
- 6+ months rounds UP to next year — time your resignation carefully
- ₹20 lakh maximum cap — high earners hit this ceiling
- Government employees: fully tax-free — private sector: exempt up to ₹20L
- Death gratuity has no minimum service requirement — even 1 day counts
- Calculate your benefits: Loan EMI Calculator | Compound Interest Calculator | Tip Calculator
Related articles: Home Loan Tax Benefits | HRA Exemption Guide | PPF vs FD vs Mutual Fund
Frequently Asked Questions
Can I get gratuity if I resign before 5 years? No — 5 years of continuous service is the minimum. Exception: death or permanent disablement, where gratuity is payable regardless of service length.
Is the ₹20 lakh cap per employer or total? Per employer. If you work at 3 different companies, each can pay up to ₹20 lakh in gratuity. The tax exemption under Section 10(10) is also per employer.
Does the 6-month rounding rule work in my favor? Yes. If you've completed 4 years and 7 months, it rounds up to 5 years — making you eligible. But 4 years and 5 months rounds down to 4 — no gratuity.
Is gratuity part of CTC? Yes, most companies include gratuity provision in CTC. It's typically 4.81% of basic salary per year. But you only receive it on exit after 5+ years.
What if my employer refuses to pay gratuity? File a claim with the Controlling Authority under the Payment of Gratuity Act. The process takes 60-90 days and employers face penalties for non-payment.
Sources: Payment of Gratuity Act 1972 (amended 2018), Income Tax Act Section 10(10), Labour Ministry Notification, Supreme Court Rulings on Gratuity.
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