How is gratuity calculated after 5 years?

Gratuity = (15/26) × Last Basic Salary × Years of Service. For a basic salary of ₹50,000 after 5 years, gratuity = (15/26) × 50,000 × 5 = ₹1,44,231.

For private sector employees, gratuity up to ₹20 lakh is tax-exempt. Government employees have full tax exemption with no ceiling limit.

Can I get gratuity before 5 years?

Generally no. The minimum eligibility is 5 years of continuous service. Exceptions are death or disability of the employee, where gratuity is paid to the nominee regardless of tenure.

Gratuity Calculator India 2026: Formula, Eligibility, and How to Claim

What Is Gratuity?

Gratuity is a statutory benefit paid by employers to employees who complete 5 or more years of continuous service. It is governed by the Payment of Gratuity Act, 1972, applicable to all establishments with 10 or more employees.

Gratuity is not a gift — it is a legal entitlement. If your employer refuses to pay after 5 years, you can file a complaint with the Labour Commissioner.

Who Is Eligible for Gratuity?

You must have completed 5 years of continuous service with the same employer. The 5-year rule has one common interpretation: if you have served 4 years and 240 days (approximately 4 years 8 months) in the 5th year, many courts and the Labour Department treat this as 5 complete years.

Special cases where gratuity is payable before 5 years:

Death of employee (paid to nominee)
Disability due to accident or disease

Gratuity Calculation Formula

For employees covered under the Act:

Gratuity = (15 / 26) × Last Drawn Basic Salary × Years of Service

For employees not covered under the Act:

Gratuity = (15 / 30) × Last Drawn Basic Salary × Years of Service

Important: Only basic salary plus dearness allowance (DA) is considered — not HRA, bonus, or other allowances.

Calculation Examples

Example 1: Private sector employee

Service: 8 years 7 months (rounds to 9 years)
Basic salary + DA: ₹45,000/month
Gratuity = (15/26) × 45,000 × 9 = ₹2,33,654

Example 2: Employee with 12 years

Basic salary + DA: ₹80,000/month
Gratuity = (15/26) × 80,000 × 12 = ₹5,53,846

Years

Basic ₹30,000

Basic ₹50,000

Basic ₹80,000

|---|---|---|---|

5	₹86,538	₹1,44,231	₹2,30,769
8	₹1,38,462	₹2,30,769	₹3,69,231
10	₹1,73,077	₹2,88,462	₹4,61,538
15	₹2,59,615	₹4,32,692	₹6,92,308
20	₹3,46,154	₹5,76,923	₹9,23,077
25	₹4,32,692	₹7,21,154	₹11,53,846

Maximum gratuity payable: ₹20 lakh (any amount above ₹20 lakh is discretionary).

Rounding Rules for Completed Years

If service period is 5 years and 3 months: count as 5 years

If service period is 5 years and 6 months or more: round up to 6 years

If service period is 5 years and exactly 6 months: typically round up to 6 years

Tax Treatment of Gratuity

Government employees: Fully exempt from income tax. No limit.

Private sector employees (covered under Act): Exempt up to the lower of: actual gratuity, ₹20 lakh, or (15/26 × last salary × years of service). Amount above ₹20 lakh is taxable.

Private sector (not covered): Exempt up to ₹20 lakh or half month's average salary per year of service, whichever is lower.

How to Claim Gratuity

Timeline: Employer must pay gratuity within 30 days of it becoming payable.

Process for salaried employees:

Submit Form I (Gratuity Application) to HR/employer within 30 days of leaving

Employer issues determination notice within 15 days

Payment must come within 30 days of your last working day

If not paid: File complaint with the Controlling Authority (Labour Commissioner in your district). You can claim gratuity + 9% interest from the due date + penalty.