Gratuity up to ₹20 lakh is exempt from tax for employees covered under the Gratuity Act.

Can I get gratuity before 5 years?

Generally no, except in cases of death or disability of the employee.

Is gratuity part of CTC?

Yes, many companies include gratuity as a component of CTC.

How to Calculate Gratuity

Gratuity is a benefit paid by employers to employees who have completed 5 or more years of service. It's governed by the Payment of Gratuity Act, 1972 in India.

Gratuity Formula (under Gratuity Act)

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

Where:

15 = 15 days' wages for each year of service
Last Drawn Salary = Basic + Dearness Allowance
Years of Service = Completed years (rounded to nearest year)
26 = Working days in a month

Step-by-Step:

1
Check eligibility
You need 5+ years of continuous service.
2
Note last drawn salary
Basic pay + DA at time of leaving.
3
Count service years
Round to nearest integer (4 yrs 7 months = 5 years).
4
Apply the formula
Calculate gratuity amount.

Worked Examples:

15 years of service

Last Salary: ₹50,000Years of Service: 15

Result: ₹4,32,692

Gratuity = (15 × 50000 × 15) / 26 = ₹4,32,692