Gratuity Rules 2026: Formula, Eligibility and Tax-Free Limit
Updated 5 November 2026
Gratuity is a lump sum an employer pays to thank you for long service. It is paid when you resign, retire, or in case of death or disability.
The formula
Gratuity = Last basic + DA × 15 ÷ 26 × years of service
15 stands for 15 days of salary for each year; 26 is the number of working days in a month. If your service has more than 6 months in the last year, it counts as a full year.
If your employer is not covered by the Payment of Gratuity Act, the formula uses 30 instead of 26 and only completed years count.
Who gets it
- Employees with at least 5 years of continuous service with the same employer.
- Under the new labour codes, fixed-term employees can get gratuity after 1 year of service.
- The 5-year rule does not apply in case of death or disability.
Tax
For private sector employees, gratuity up to ₹20 lakh in a lifetime is tax-free. Government employees' gratuity is fully tax-free.
Example
Last basic + DA of ₹50,000 and 10 years 7 months of service: 11 years count. Gratuity = 50,000 × 15 ÷ 26 × 11 = about ₹3.17 lakh.
Try it
Open the gratuity calculator and enter your own numbers. Words you don't know are explained in the money glossary.