Is 5 years of service mandatory to receive gratuity?

Yes. Under Section 4(1) of the Act, an employee must complete a minimum of 5 continuous years of service with an organization to be eligible for gratuity upon resignation, retirement, or superannuation. The only exceptions are demise or permanent disablement.

How are fractions of a year treated in gratuity calculations?

For organizations covered under the Payment of Gratuity Act, any service tenure exceeding 6 months is rounded up to the next full year. For example, a tenure of 6 years and 7 months is calculated as 7 full years.

What is the maximum tax-free gratuity limit in India?

Under Section 10(10) of the Income Tax Act, gratuity received up to ₹20,00,000 (Twenty Lakhs) across an employee's entire working lifetime is 100% tax-free. Any gratuity amount exceeding ₹20 Lakhs is added to taxable salary income.

Payment of Gratuity Act, 1972Verified: Payment of Gratuity Act, 1972

Gratuity Calculator: Payment of Gratuity Act, 1972

Estimate your statutory retirement or resignation gratuity payout based on last drawn monthly basic salary and years of continuous service. Verifies 5-year eligibility and Section 10(10) ₹20 Lakh tax exemption.

Direct Answer:For a last drawn basic salary of ₹50,000 and 10 years 0 months of service, your calculated statutory gratuity is ₹2,88,462 using the formula: 15/26 × Last Drawn Wages × Completed Years of Service. The entire amount of ₹2,88,462 is 100% tax-free under Section 10(10) (subject to the statutory ₹20 Lakh lifetime ceiling).

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Adjust Parameters

Last Drawn Monthly Basic Salary₹50 Thousand

₹

₹5,000₹50,00,000

Last drawn month's basic salary credited before exit.

Monthly Dearness Allowance (DA)

₹

₹0₹10,00,000

DA forming part of retirement benefits (standard for PSUs/Govt; typically ₹0 for private sector).

Completed Continuous Service Tenure

Years

Months

1 Y45 Y

Minimum 5 continuous years required under Section 4(1).

Covered under Payment of Gratuity Act, 1972

Applies to establishments with 10+ employees. Uses 15/26 formula and rounds service > 6 months to the next year.

Waive 5-Year Tenure Rule (Death or Permanent Disablement)

Second proviso to Section 4(1): 5-year continuous service condition is not mandatory in case of death or disablement.

Total Statutory Gratuity Payable

₹2,88,462

Based on 10 effective service years (15/26 × Last Drawn Wages × Completed Years of Service)

Tax-Free Gratuity

₹2,88,462

100% Tax-Exempt under Section 10(10)

Taxable Gratuity Component

₹0

₹0 taxable amount

Statutory Exemption Ceiling

₹20,00,000

Section 10(10) lifetime limit (₹20 Lakhs)

Gratuity Tax Exemption Status (Section 10(10))

Total: ₹2,88,462

Gratuity Tax Exemption Status (Section 10(10)) data table
Category	Amount	Percentage
Tax-Exempt Gratuity	₹2,88,462	100.0%

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How Statutory Gratuity Formulas & Rules is Calculated

Transparent mathematical formulas and assumptions used across our financial engines.

Mathematical Formula

Gratuity = 15/26 × Last Drawn Eligible Wages × Completed Years of Service

Variables & Legend

15/26

15 working days out of 26 monthly working days (excluding 4 Sundays per wage month under Section 4(2))

Eligible Wages

Last drawn monthly Basic Salary + Dearness Allowance (DA)

Completed Years

Service tenure. For covered employees, months > 6 round up to the next full year

Non-Covered Formula

Gratuity = 15/30 × Last Drawn Wages × Completed Years of Service (only completed years count)

Conventions & Assumptions

Payment of Gratuity Act, 1972 applies to factories, mines, oilfields, plantations, ports, railway companies, shops, and establishments with 10 or more employees.
Section 4(1) mandates a minimum of 5 continuous years of service for eligibility. This condition is explicitly waived under the second proviso in case of death or disablement.
Under Section 10(10) of the Income Tax Act, gratuity received is tax-exempt up to a lifetime statutory ceiling of ₹20,00,000 (Twenty Lakh Rupees). Any excess above ₹20 Lakhs is taxable as income.

Frequently Asked Questions

For employees covered under the Act: Gratuity = (15 × Last Drawn Basic Salary + DA × Tenure in Years) / 26. Here, 15 represents 15 working days per completed year of service, and 26 represents the standard number of working days in a month (excluding 4 Sundays).

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