Tax & Salary
Gratuity Rules in India: Eligibility, the 15/26 Formula and Tax
Eligibility after 5 years (1 year for fixed-term), the 15/26 formula with worked examples, the ₹20 lakh tax-free limit and what the labour codes change.
By Team Vind · Updated · 5 min read
Gratuity is a lump sum your employer pays when you leave after long service, as a thank-you for your years with them. It's often one of the largest payments you'll get on a job change or retirement. Here's who qualifies, the formula, and how much of it is tax-free.
Who gets gratuity?
- Permanent employees after 5 years of continuous service with the same employer. Courts have accepted 4 years and 240 working days in the fifth year.
- Fixed-term employees after just 1 year, under the Code on Social Security, 2020, in force since 21 November 2025.
- On death or disability, the minimum service doesn't apply; gratuity goes to the employee or their nominee.
The law covers employers with 10 or more employees. Smaller employers may pay gratuity under their own policy.
The 15/26 formula
Gratuity = last basic + DA × 15 × years of service ÷ 26
You get 15 days' wages for each year. A month is taken as 26 working days, so 15 days' wages = monthly wage × 15 ÷ 26. If the last year has more than 6 months of service, it counts as a full year.
Example: last basic + DA ₹60,000, service 10 years 7 months. The 7 months round up, so 11 years count: 60,000 × 15 × 11 ÷ 26 = ₹3,80,769. With only 5 extra months it would be 10 years, or ₹3,46,154.
Try it: Gratuity Calculator
Your Gratuity
Working
- Gratuity = basic + DA × 15 ÷ 26 × years
- = 60,000 × 15 ÷ 26 × 11 = 3,80,769
Gratuity at a glance
| Basic + DA | 5 years | 10 years | 20 years | 30 years |
|---|---|---|---|---|
| ₹25,000 | ₹72,115 | ₹1,44,231 | ₹2,88,462 | ₹4,32,692 |
| ₹50,000 | ₹1,44,231 | ₹2,88,462 | ₹5,76,923 | ₹8,65,385 |
| ₹75,000 | ₹2,16,346 | ₹4,32,692 | ₹8,65,385 | ₹12,98,077 |
| ₹1,00,000 | ₹2,88,462 | ₹5,76,923 | ₹11,53,846 | ₹17,30,769 |
Tax on gratuity
- Government employees: fully tax-free.
- Private-sector employees: tax-free up to ₹20,00,000 (20 lakh) over your whole career, not per employer. Anything above is added to your income and taxed at your slab rate.
This exemption was section 10(10) of the old Income-tax Act, and the Income-tax Act, 2025, in force from 1 April 2026, keeps the same limit. If you've received gratuity from an earlier employer, that amount reduces the tax-free limit left for later ones.
The new labour codes and your basic pay
Under the labour codes, "wages" must be at least 50% of total pay. If allowances make up more than half your pay, the excess is added back when gratuity is calculated. People with a low basic salary can see a noticeably higher gratuity as a result.
Leaving a job? Also check your leave encashment and your EPF balance.
Frequently asked questions
Can I get gratuity before 5 years?
Yes in three cases: fixed-term employees after 1 year, on death or disability, and where courts have counted 4 years and 240 days as 5 years.
What is the gratuity for 10 years on ₹50,000 basic?
₹50,000 × 15 × 10 ÷ 26 = ₹2,88,462.
Is gratuity part of CTC?
Many companies include it in CTC (about 4.81% of basic), but you receive it only when you leave after qualifying.
Is gratuity taxable?
For private-sector employees, up to ₹20,00,000 in a lifetime is tax-free; the rest is taxed at your slab rate. Government employees pay no tax on it.
These results are estimates for planning only, not financial, investment or tax advice. Rates and rules change, and your bank, fund house or employer may calculate slightly differently. Check with them or a qualified adviser before you decide.
Sources
- Ministry of Labour and Employment: Code on Social Security, 2020 (Chapter V, gratuity)
- Payment of Gratuity Act, 1972
- Income Tax Department: exemption for gratuity (formerly section 10(10))
Last reviewed: 10 October 2026