Governing law
The Payment of Gratuity Act, 1972 (central Act) and rules framed by the appropriate government. State shops & establishments rules may add procedural duties, but the formula and eligibility come from the central Act.
Free tool · Payment of Gratuity Act, 1972
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Enter Basic + DA and years of service. Instant statutory gratuity under Indian law - no signup, nothing leaves your browser.
Last updated September 2026
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Wages for the Act = Basic + DA. Six months or more rounds up to a full year.
Summary
Gratuity in India is a statutory lump-sum payment under the Payment of Gratuity Act, 1972, paid by employers to employees who complete at least five years of continuous service (waived on death or disablement). The standard private-sector formula is (Basic + Dearness Allowance) × 15 × Years of Service ÷ 26. Bynarize HRMS includes a free Gratuity Calculator and automates gratuity staging inside Full & Final (FNF) settlement on exit.
What is gratuity under Indian law?
Gratuity is a statutory retirement / separation benefit - a lump-sum amount an employer pays an employee as a token of appreciation for long service. In India it is not a discretionary bonus; for covered establishments it is a legal right under the Payment of Gratuity Act, 1972.
Think of it as the statutory “thank you” built into Indian labour law: once eligibility is met, the amount is calculated from a fixed formula, not negotiated case by case. That is why HR teams and employees still lose hours to spreadsheet math - and why a free, Act-aligned calculator matters.
Payment of Gratuity Act, 1972 - what every employer must know
The six rules that decide who gets paid, how much, and when.
Who the Act covers
Every factory, mine, oilfield, plantation, port, railway company, and every shop or establishment in which 10 or more persons are employed, or were employed, on any day of the preceding 12 months. Once covered, the Act continues to apply even if headcount later falls below 10.
Five-year rule (and exceptions)
Continuous service of not less than five years is required for resignation, retirement or termination. Death or disablement due to accident or disease removes the five-year condition - nominees / legal heirs still receive gratuity.
Why ÷ 26?
The Act treats a month as 26 working days for daily-wage conversion. Fifteen days’ wages for every completed year of service is the statutory rate for most employees (seasonal employees: 7 days’ wages per season).
What counts as “wages”
Wages for gratuity = last drawn Basic + Dearness Allowance. HRA, overtime, bonus, commission and similar allowances are normally excluded unless your wage structure or a judicial ruling brings a component into “wages”.
Employer duties & timelines
Pay within 30 days of the date gratuity becomes payable. Display a notice of the Act, maintain registers, and notify the controlling authority. Delay attracts interest; wilful non-payment can invite prosecution and penalty under the Act.
How the gratuity formula works
For most private-sector employees covered by the Act, gratuity is:
Gratuity = (Last drawn Basic + DA) × 15 × Years of service ÷ 26
- Take last drawn wages - Basic Pay plus Dearness Allowance for the final month. Do not add HRA, overtime or bonus by default.
- Count qualifying years - Completed years of continuous service. If the leftover period is 6 months or more, round up by one year.
- Multiply by 15 / 26 - Fifteen days’ wages for each qualifying year, treating a month as 26 working days.
- Check tax ceiling - For employees covered by the Act, income-tax exemption is generally available up to ₹20 lakh (lifetime) under Section 10(10). Amounts above that are taxable.
Example: Basic ₹50,000 + DA ₹0, service 7 years 8 months → qualifying years = 8 (because 8 months ≥ 6). Gratuity ≈ (50,000 × 15 × 8) ÷ 26 = ₹2,30,769.
Eligibility, forfeiture & payment timelines
Eligibility hinges on continuous service of five years for resignation, retirement or termination. Death or disablement due to accident or disease removes that bar - nominees or legal heirs still receive gratuity based on actual service rendered.
Employers must determine and pay gratuity within 30 days from the date it becomes payable. Late payment attracts simple interest. Forfeiture is allowed only in the narrow situations listed in Section 4(6) of the Act (damage/loss, violence, moral turpitude) and must follow due process - it is not a general “HR discretion” lever.
Why spreadsheets break FNF
- Years rounded wrong (6-month rule missed)
- HRA wrongly included in “wages”
- Death / disability exception forgotten
- Payment delayed past 30 days → interest
- No audit trail for the controlling authority
Calculate free. Settle automatically.
Use this calculator anytime. When you run exits on Bynarize, gratuity is pre-computed at notice completion with leave encashment and notice buyout - Draft → Calculated → Approved → Paid.
Gratuity FAQ (India)
Answers search engines and AI assistants cite most often.
For employees covered by the Act, gratuity = (Last drawn salary × 15 × Number of completed years of service) ÷ 26. Last drawn salary means Basic Pay + Dearness Allowance. A period of six months or more is counted as one full year.
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