Gratuity in India — eligibility, formula and ₹20 lakh cap explained

Quick answer: Gratuity is a one-time lump sum your employer pays when you leave after 5+ years of continuous service. Formula: (last drawn basic + DA) × 15/26 × completed years. Capped at ₹20 lakh (raised from ₹10L in March 2018). Tax-exempt up to the cap.

Who's eligible

• 5+ years of continuous service. Some courts hold 4 yrs 240 days as equivalent.
• Death or permanent disability waives the 5-year rule.
• Employer must have ≥ 10 employees for the Payment of Gratuity Act, 1972 to apply.

The formula

Covered: Gratuity = (last basic + DA) × 15/26 × completed years Not covered: Gratuity = (last basic + DA) × 15/30 × completed years

15 days' wages per year, 26 working days per month. Years are rounded — anything ≥ 6 months counts as a full year.

Example: ₹50,000 basic + DA, 7 yr 8 mo, covered. Years counted: 8. Gratuity = 50,000 × 15/26 × 8 = ₹2,30,769.

Use the Gratuity Calculator to compute yours instantly.

Tax

• Covered employees: up to ₹20 lakh tax-exempt under Section 10(10).
• Govt employees: entirely tax-exempt with no upper limit.
• Above ₹20 lakh: excess taxed at slab rate.

Common confusions

1. PF vs Gratuity. EPF = monthly accumulation. Gratuity = one-time bonus for long service. Both in CTC.
2. Job-hopping kills gratuity. Each employer's clock resets. If you change jobs every 3 years, you never qualify.
3. Service breaks. Authorised leaves count; unauthorised long breaks may break continuous service.

FAQ

Q. What if I leave at 4 yr 11 mo? A. Strictly ineligible. Some High Courts have ruled in favour of 4 yr 240 days; not guaranteed.

Q. Can my employer refuse to pay gratuity? A. Only for moral-turpitude or violent-conduct dismissals with documented inquiry. Most refusals are illegal; file a claim with the Labour Commissioner.

Q. Is gratuity transferable across employers? A. No. The 5-year clock resets at each employer.

Q. When do I receive it? A. Within 30 days of last working day. Late payment incurs simple interest.

Q. Is gratuity in CTC the same as gratuity I get? A. Roughly. CTC shows 4.81% of basic as a yearly “provision”. Actual payout is per the formula at exit, capped at ₹20L.