Not sure the employee qualifies? Use the gratuity eligibility checker. For the actuarial liability in the books, see the gratuity actuarial calculator.
For an employee of an establishment covered by the Payment of Gratuity Act, 1972, gratuity is fifteen days of wages for each completed year of service. A day of wages is taken as one twenty-sixth of the monthly wages, so the formula is last drawn monthly salary multiplied by 15, divided by 26, multiplied by the years of service. The salary used is basic plus dearness allowance.
A part of a year of more than six months counts as a full year. An employee with 12 years and 8 months of service is therefore treated as having 13 years, while one with 12 years and 5 months is treated as having 12.
For employees of establishments not covered by the Act, section 10(10)(iii) of the Income-tax Act, 1961 exempts half a month's average salary of the last ten months for each completed year of service, with no rounding up, subject to a limit the Central Government notifies. The calculator uses the 30-day month and a ₹20 lakh limit for that case; confirm the notified limit. For employees under the Act, the ceiling is ₹20 lakh.
An employee in an establishment covered by the Act has a last drawn basic plus dearness allowance of ₹50,000 a month and has served 12 years and 8 months.
