Estimate gratuity payable under India's Payment of Gratuity Act, simplified.
Gratuity is a lump sum an employer pays on exit as a reward for continuous service. Under the Payment of Gratuity Act it is calculated as last drawn salary x 15/26 x years of service, where salary means basic plus dearness allowance, and 15/26 represents fifteen days' wages for each completed year based on a twenty-six day working month. The Act applies to establishments with ten or more employees.
Two rules decide most real cases. Eligibility normally requires five years of continuous service, with an important exception: the five-year condition does not apply where service ends due to death or disablement. And the rounding of the final year is specific — service beyond six months counts as a full year, while six months or less is ignored, so 7 years 7 months counts as 8 while 7 years 5 months counts as 7. Gratuity received is tax-exempt up to a statutory ceiling, with anything above that taxable. Employers not covered by the Act may pay gratuity voluntarily, but the formula and exemption treatment can differ.
Usually yes, five years of continuous service. The exception is where employment ends because of death or disablement, in which case the five-year requirement does not apply.
More than six months counts as a full year; six months or less is ignored. So 7 years and 7 months is treated as 8 years, while 7 years and 5 months is treated as 7.
Because it assumes a twenty-six day working month, excluding weekly rest days. Dividing by 26 rather than 30 produces a higher daily wage figure and therefore a larger gratuity.
It is exempt up to a statutory ceiling, and amounts above that are taxable. Because the ceiling and treatment have changed over time and differ for government employees, confirm the current limit before relying on a figure.