Gratuity calculation and eligibility for employees in India 2026

Personal Finance August 28, 2026 8 min read

Gratuity Calculation & Eligibility India (2026) — How It Works & the Formula

Gratuity is a reward for loyalty — a lump sum your employer pays for long service, and it can run into lakhs. Yet many employees don’t know they’re entitled to it or how it’s calculated. This guide explains gratuity in India for 2026 — who’s eligible (the 5-year rule), the exact calculation formula with examples, when it’s paid, the tax treatment, and how to claim it.

Quick Answer	Details
What it is	A lump-sum payment for long service (Payment of Gratuity Act)
Eligibility	Generally 5 years of continuous service with an employer
Formula	(Last drawn basic + DA) × 15/26 × years of service
Paid on	Resignation, retirement, or (with exceptions) death/disability
Tax	Exempt up to a limit; excess is taxable (per rules)
Claim	Apply to the employer after leaving; they must pay within the timeline

What Is Gratuity?

Gratuity is a lump-sum payment an employer gives an employee for long, continuous service, governed mainly by the Payment of Gratuity Act. Think of it as a thank-you for loyalty — and a meaningful boost to your finances when you leave a job after years of service.

Who Is Eligible? (The 5-Year Rule)

Generally, you’re eligible for gratuity after 5 years of continuous service with the same employer. It’s payable on:

Resignation (after 5 years).
Retirement / superannuation.
Death or disablement — here the 5-year rule does NOT apply (paid to nominee/family).

Rules apply to establishments covered by the Act; exact conditions can change — verify current provisions.

The Gratuity Calculation Formula

For employees covered by the Act, the common formula is:

Gratuity = (Last drawn Basic + DA) × 15/26 × Number of years of service

Here, 15/26 represents 15 days’ wages for each completed year (26 = working days in a month). A part-year above 6 months is usually rounded up to a full year.

Example

Input	Value
Last drawn Basic + DA	₹40,000/month
Years of service	10 years
Calculation	40,000 × 15/26 × 10
Gratuity	≈ ₹2,30,769

So a decade of service on a ₹40,000 basic yields over ₹2.3 lakh — a substantial sum many employees overlook.

Tax on Gratuity

Gratuity enjoys tax exemption up to a specified limit (the exemption differs for government vs other employees and is subject to an overall ceiling under the rules). Amounts above the limit are taxable. This makes it a fairly tax-efficient payout. See our save income tax guide, and factor it into your ITR.

How to Claim Gratuity

After leaving (resignation/retirement), apply to your employer in the prescribed form.
The employer must calculate and pay within the timeline specified by the Act.
If unpaid/disputed, you can escalate to the controlling authority under the Act.
For death cases, the nominee/family claims it — keep a nominee registered.

Smart Points

Register a nominee so your family gets it smoothly if needed.
Know your entitlement before resigning near the 5-year mark — a few extra months can unlock lakhs.
Plan the lump sum — invest it wisely; see best investment options.

Gratuity is money you’ve earned through years of work — know the rules so you claim every rupee. Provisions and limits are set by law and can change; verify current rules or consult an expert.

Frequently Asked Questions

Who is eligible for gratuity in India?▼

Generally, an employee becomes eligible for gratuity after completing 5 years of continuous service with the same employer, under the Payment of Gratuity Act. It is payable on resignation after 5 years, on retirement or superannuation, and on death or disablement. Importantly, in the case of death or disablement, the 5-year requirement does not apply, and the gratuity is paid to the nominee or family. The rules apply to establishments covered by the Act, and exact conditions can change, so verify the current provisions or consult an expert for your specific situation.

How is gratuity calculated?▼

For employees covered by the Payment of Gratuity Act, the common formula is: gratuity equals last drawn basic plus dearness allowance, multiplied by 15/26, multiplied by the number of years of service. The 15/26 represents 15 days' wages for each completed year, with 26 taken as the working days in a month. A part-year of more than 6 months is usually rounded up to a full year. For example, on a last-drawn basic-plus-DA of Rs 40,000 with 10 years of service, gratuity works out to about Rs 2,30,769.

Is gratuity taxable in India?▼

Gratuity enjoys tax exemption up to a specified limit, with the exemption differing for government employees versus other employees and subject to an overall ceiling under the rules. Any amount received above the exemption limit is taxable as per the applicable provisions. This makes gratuity a relatively tax-efficient payout for long service. Because the exact limits and rules can change, you should verify the current provisions when you receive gratuity, factor the taxable portion into your income tax return, and consult a tax professional if the amount is large or your case is complex.

When is gratuity paid?▼

Gratuity is paid when an eligible employee leaves the organisation - on resignation after completing 5 years, on retirement or superannuation, or in the case of death or disablement, where the 5-year rule does not apply and it goes to the nominee or family. After you leave, you apply to your employer in the prescribed form, and the employer must calculate and pay the gratuity within the timeline specified by the Act. If it is not paid or is disputed, you can escalate the matter to the controlling authority under the Act.

How do I claim my gratuity?▼

After leaving your job through resignation or retirement, apply to your employer in the prescribed gratuity form. The employer is then required to calculate and pay the gratuity within the timeline specified by the Payment of Gratuity Act. If the gratuity is not paid or there is a dispute, you can escalate the matter to the controlling authority designated under the Act. In cases of death, the registered nominee or family claims it, which is why registering a nominee is important. Keep records of your service and last drawn salary to support your claim.

Disclaimer: This article is for general information and educational purposes only, and is accurate to the best of our knowledge as of August 28, 2026. It is not professional, financial, legal or investment advice. Rules, rates and details change — please verify from official sources before acting. Read our full disclaimer.