Question 1

What is the gratuity formula in India?

Accepted Answer

Gratuity = (Last Drawn Salary × 15 × Years of Service) ÷ 26. The 15 represents 15 days wages per year, and 26 is the working days in a month (30 − 4 weekly offs). Last drawn salary = Basic + Dearness Allowance only.

Question 2

Is gratuity taxable in India?

Accepted Answer

Gratuity is tax-exempt up to ₹20,00,000 (₹20 lakh) under Section 10(10) of the Income Tax Act, as amended in 2018. Any amount above ₹20 lakh is taxable as salary income.

Question 3

What is the minimum service period for gratuity?

Accepted Answer

Under the Payment of Gratuity Act, 1972, an employee must complete at least 5 years of continuous service to be eligible. Exception: in case of death or disablement, gratuity is paid regardless of service duration.

Question 4

What salary components are included in gratuity calculation?

Accepted Answer

Only Basic Salary + Dearness Allowance (DA) are included. HRA, special allowances, bonus, performance pay, overtime, and other components are excluded.

Question 5

When is gratuity paid?

Accepted Answer

Gratuity is paid on cessation of employment — retirement, resignation (after 5+ years), layoff, or termination. For death or disablement, it is paid to the nominee/legal heir regardless of tenure. Must be paid within 30 days of becoming due.

Monthly Salary (₹)	Years	Gratuity (₹)	Taxable (₹)
30,000	5	86,538	0
50,000	10	2,88,462	0
75,000	15	6,49,038	0
1,00,000	20	11,53,846	0
2,00,000	30	34,61,538	14,61,538

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What is the gratuity formula in India?

Is gratuity taxable in India?

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What salary components are included in gratuity calculation?

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