Private employees get gratuity after 5 years. Learn the 15/26 formula, see worked examples, and check your take-home with our salary calculator.
Gratuity is a lump-sum payment an employer makes as thanks for continuous service. Under the Payment of Gratuity Act, 1972, most private-sector employees become eligible after five years with the same employer. Many people never claim the full amount simply because they do not know the formula.
The gratuity formula everyone should know
Gratuity = (15 x last drawn salary x completed years) divided by 26.
Here salary means basic pay plus dearness allowance. The 26 represents working days in a month, and 15 is the number of days of salary counted per year of service. This formula applies to most covered private employees.
Worked example
Suppose your last basic plus DA is Rs 50,000 and you served 10 years:
(15 x 50,000 x 10) / 26 = Rs 2,88,461.
That is your tax-free gratuity, provided your total gratuity stays within the Rs 20 lakh exemption cap. Someone with a Rs 80,000 basic and 15 years would receive about Rs 6.92 lakh.
What counts as completed years
The law rounds off. If you served 10 years and 7 months, it counts as 11 years. Service beyond six months is rounded up, below six months is ignored. This rounding can add a full year of pay to your payout.
Gratuity for non-covered employers
Some companies outside the Act still pay gratuity through appointment letters. The formula may differ, so read your offer letter. A few use a simpler 30 days of salary per completed year.
Tax treatment
Gratuity is exempt up to Rs 20 lakh for most private employees. Amounts above that are taxable as salary income. Government employees get a fully exempt gratuity with no cap.
Do I get gratuity if I resign before 5 years?
Generally no. The five-year continuous service rule applies, with narrow exceptions for death or disability, where the full amount is paid to the nominee.
How do I estimate my full payout including gratuity
Use our salary calculator to model components and see how gratuity fits your exit package before you resign.
Is gratuity part of my CTC
Often yes, but it is paid only on eligibility. Do not treat it as monthly income; it is a lump sum at separation.
