{"id":42900,"date":"2026-09-09T11:00:00","date_gmt":"2026-09-09T05:30:00","guid":{"rendered":"https:\/\/kuvera.in\/blog\/?p=42900"},"modified":"2026-09-08T19:54:30","modified_gmt":"2026-09-08T14:24:30","slug":"what-is-gratuity-in-india-rules-calculation-and-tax-implications","status":"publish","type":"post","link":"https:\/\/kuvera.in\/blog\/what-is-gratuity-in-india-rules-calculation-and-tax-implications\/","title":{"rendered":"what is Gratuity in india? rules, calculation, and tax implications"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_87 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/kuvera.in\/blog\/what-is-gratuity-in-india-rules-calculation-and-tax-implications\/#who_is_eligible_for_gratuity\" >who is eligible for gratuity<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/kuvera.in\/blog\/what-is-gratuity-in-india-rules-calculation-and-tax-implications\/#how_gratuity_is_calculated\" >how gratuity is calculated<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/kuvera.in\/blog\/what-is-gratuity-in-india-rules-calculation-and-tax-implications\/#tax_on_gratuity\" >tax on gratuity<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/kuvera.in\/blog\/what-is-gratuity-in-india-rules-calculation-and-tax-implications\/#when_is_gratuity_paid\" >when is gratuity paid<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/kuvera.in\/blog\/what-is-gratuity-in-india-rules-calculation-and-tax-implications\/#frequently_asked_questions\" >frequently asked questions<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n\n<p class=\"wp-block-paragraph\">gratuity is a lump-sum payment from an employer to an employee as a reward for long-term service. the employer funds it entirely. the employee does not contribute any money to it.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">the new labour codes changed the rules from november 2025. fixed-term employees can now get gratuity after just one year of service on a pro-rata basis. permanent employees still need five years of continuous service. the tax-free limit under section 10(10) is \u20b920 lakh for private sector employees. gratuity is a statutory benefit under the payment of gratuity act, 1972. it applies to establishments with 10 or more employees. the social security code, 2020 replaced the older act and modernised the framework for gratuity payments from november 21, 2025.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"who_is_eligible_for_gratuity\"><\/span><strong>who is eligible for gratuity<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">eligibility rules changed significantly in november 2025.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>for permanent employees.<\/strong>&nbsp;five years of continuous service with the same employer is required. the five-year rule does not apply in cases of death or permanent disablement.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>for fixed-term employees.<\/strong>&nbsp;this is the big change. fixed-term employees are now eligible for gratuity after one year of service. the payment is on a pro-rata basis, meaning the employee receives gratuity proportional to the period worked. this rule applies only to employees who joined on or after the new labour codes were implemented.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">continuous service means at least 240 days worked in a year for a typical work schedule.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"how_gratuity_is_calculated\"><\/span><strong>how gratuity is calculated<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">the calculation uses a standard formula.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>covered under the act.<\/strong>&nbsp;gratuity = (15\/26) \u00d7 last drawn wages \u00d7 completed years of service.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>last drawn wages.<\/strong>\u00a0includes basic pay and dearness allowance. under the new wage definition, basic pay + da must be at least 50% of total remuneration. if allowances exceed that, the excess is added back to basic pay, raising the gratuity base.<\/li>\n\n\n\n<li><strong>15\/26.<\/strong>\u00a015 days wages for each year of service. a month is treated as 26 working days.<\/li>\n\n\n\n<li><strong>years of service.<\/strong>\u00a0completed years are counted. part of a year exceeding six months is rounded up to the next full year.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><thead><tr><th class=\"has-text-align-left\" data-align=\"left\">employee type<\/th><th class=\"has-text-align-left\" data-align=\"left\">formula<\/th><th class=\"has-text-align-left\" data-align=\"left\">special rule<\/th><\/tr><\/thead><tbody><tr><td>permanent (covered)<\/td><td>(15\/26) \u00d7 last drawn wages \u00d7 years of service<\/td><td>part-year &gt;6 months rounded up<\/td><\/tr><tr><td>fixed-term<\/td><td>pro-rata based on actual service<\/td><td>eligible after 1 year<\/td><\/tr><tr><td>not covered by act<\/td><td>(15\/30) \u00d7 wages \u00d7 years of service<\/td><td>part-year ignored<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>example.<\/strong>&nbsp;last drawn wages \u20b950,000. 10 years and 7 months of service. service is rounded to 11 years. gratuity = \u20b950,000 \u00d7 15\/26 \u00d7 11 = \u20b93,17,308.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"tax_on_gratuity\"><\/span><strong>tax on gratuity<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">taxation depends on the employee category.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>government employees.<\/strong>&nbsp;gratuity is fully exempt from income tax.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>private sector employees.<\/strong>&nbsp;the lowest of the following is exempt under section 10(10):<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>actual gratuity received<\/li>\n\n\n\n<li>\u20b920 lakh (lifetime limit)<\/li>\n\n\n\n<li>eligible gratuity calculated by formula<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">any amount above the exemption is taxed as salary income at the applicable slab rate.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"when_is_gratuity_paid\"><\/span><strong>when is gratuity paid<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">gratuity becomes payable upon:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>retirement or superannuation<\/li>\n\n\n\n<li>resignation (after completing the required service)<\/li>\n\n\n\n<li>death or disablement due to accident or disease<\/li>\n\n\n\n<li>termination of contract for fixed-term employees<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">employers must pay gratuity within 30 days of it becoming payable. delay attracts simple interest.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"frequently_asked_questions\"><\/span><strong>frequently asked questions<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>1. can gratuity be forfeited?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">yes, but only in specific situations. an employer can withhold gratuity fully or partially if the employee&#8217;s service is terminated for wilful damage to property, riotous conduct, or an offence involving moral turpitude. routine resignation or performance issues do not permit forfeiture.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>2. what is the gratuity ceiling for private sector employees?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">the tax-free limit is \u20b920 lakh. any amount above this is taxable.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>3. is gratuity part of ctc?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">yes. gratuity is almost always included in the cost-to-company, though there is no strict legal mandate. it represents a financial liability the employer must provision for.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>4. can fixed-term employees get gratuity?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">yes, under the new rules. fixed-term employees are eligible after one year of service on a pro-rata basis.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>5. how does the new wage definition affect gratuity?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">the new wage definition requires basic pay + dearness allowance to be at least 50% of total remuneration. if allowances exceed 50%, the excess is added to basic pay, increasing the gratuity payout.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>gratuity is a lump-sum payment from an employer to an employee as a reward for long-term service. the employer funds it entirely. the employee does not contribute any money to it. the new labour codes changed the rules from november 2025. fixed-term employees can now get gratuity after just 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november 2025. fixed-term employees can now get gratuity after just one year of service on a [...]Read More...","og_url":"https:\/\/kuvera.in\/blog\/what-is-gratuity-in-india-rules-calculation-and-tax-implications\/","og_site_name":"Kuvera","article_publisher":"https:\/\/www.facebook.com\/kuvera.in","article_published_time":"2026-09-09T05:30:00+00:00","og_image":[{"width":1536,"height":1024,"url":"https:\/\/kuvera.in\/blog\/wp-content\/uploads\/2026\/09\/ChatGPT-Image-Sep-8-2026-07_53_10-PM.png","type":"image\/png"}],"author":"Kuvera Desk","twitter_card":"summary_large_image","twitter_creator":"@Kuvera_In","twitter_site":"@Kuvera_In","twitter_misc":{"Written by":"Kuvera Desk","Est. reading time":"4 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