Who is eligible for gratuity and how is it calculated?
Under the Payment of Gratuity Act, an employee is eligible for gratuity after completing 5 years of continuous service (waived on death or disablement). It's calculated as (last drawn basic + DA) × 15/26 × number of completed years of service. Gratuity up to ₹20 lakh is tax-free for covered employees.
1Eligibility
You qualify after 5 years of continuous service with the same employer (the 5-year rule doesn't apply if employment ends due to death or disablement). It applies to establishments with 10 or more employees.
2The formula and tax
Gratuity = (last drawn basic + DA) × 15/26 × completed years (6+ months counts as a full year). For employees covered by the Act, gratuity up to ₹20 lakh is exempt from income tax.
Frequently asked questions
Can I get gratuity before 5 years?
Generally no — 5 years of continuous service is required. The only exceptions are death or disablement, where gratuity is paid regardless of the length of service.
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General information for AY 2026-27, not professional advice. Laws change with each Finance Act, notification or amendment and depend on your specific facts — verify the current position with a licensed CA or advocate before acting.