Gratuity Rules in India: Eligibility, Calculation and Claims (2026)

Explainer · Labour Law · Gratuity

Updated for 2026 · Claw Editorial

Gratuity is a lump sum your employer owes you for long service. Under the Payment of Gratuity Act, 1972, it is payable once you complete five years of continuous service, and sooner if service ends due to death or disablement. The amount is your last drawn basic pay plus dearness allowance, multiplied by 15 and by your years of service, divided by 26. The tax-free ceiling is Rs 20 lakh. This guide explains who qualifies, how to work out the figure, how to claim it using Form I, and what to do if the employer refuses. Last verified October 2026.

01What gratuity is and why it matters

Gratuity is money an employer pays a worker as a thank-you for staying. It is not a bonus and not part of monthly salary. It is a one-time payment that falls due when you leave after a long enough stretch of service, whether you resign, retire, or are let go.

It matters because it is a legal right, not a favour. Many workers do not claim it, or accept less than they are owed, because they do not know the formula or the process. The law also puts a time limit on the employer to pay, with interest for delay.

02Who is eligible

Gratuity is payable to an employee who has completed five years of continuous service with the same employer. The five-year rule is relaxed where service ends because of death or disablement due to accident or disease. In those cases, gratuity is payable even if five years are not complete.

The Act applies to establishments with 10 or more employees, including factories, mines, shops and offices. Gratuity becomes payable on:

• retirement or superannuation;
• resignation after five years;
• death or disablement (the five-year rule does not apply here); and
• in some cases, the end of employment by the employer.

03How gratuity is calculated

For an employee covered by the Act, the formula is:

Gratuity = last drawn basic pay plus dearness allowance, multiplied by 15, multiplied by completed years of service, divided by 26.

Two points make a big difference to the figure:

• The divisor is 26, because the law treats a month as 26 working days for covered employees.
• Rounding of years: in the last year of service, a part over six months counts as a full year, and six months or less is ignored.

Example: if your last drawn basic plus dearness allowance is Rs 52,000 and you served 10 years, gratuity is 52,000 x 15 x 10 / 26, which is Rs 3,00,000. The figure is then capped by the statutory ceiling.

04The ceiling and tax

The maximum gratuity payable under the Act is Rs 20 lakh. This ceiling was raised from Rs 10 lakh with effect from 29 March 2018.

Gratuity up to the ceiling is generally exempt from income tax for employees covered by the Act. Anything an employer pays above the ceiling is usually taxable in the employee hands. Tax treatment can differ for government employees, so confirm your own position before you file.

05How to claim gratuity

You do not have to wait for the employer to act, but the law also puts a duty on the employer to pay even without an application.

1. Apply in Form I. The employee applies to the employer in Form I, ordinarily within 30 days from the date gratuity becomes payable. A nominee or legal heir uses a different form on death.
2. Employer determines the amount. The employer works out the gratuity and gives notice of the amount to the employee and the controlling authority.
3. Payment within 30 days. The gratuity must be paid within 30 days from the date it becomes payable. If it is not, simple interest runs from the due date until payment, unless the delay is the employee fault.

Do not worry if you miss the 30-day window to apply. A claim is not rejected only because it is late, if there is good reason.

06If the employer refuses

If the employer refuses to pay, pays less, or delays, you apply to the controlling authority under the Act. The controlling authority is usually the Assistant Labour Commissioner or a similar officer for the area.

The controlling authority can hear the dispute, decide the amount, and direct payment with interest. An appeal against that order lies to the appellate authority, normally within 60 days of receiving the order, which may be extended for good reason. An employer appeal is not admitted unless the employer first deposits the amount found due.

07Where Claw fits

Claw is an all-in-one legaltech platform for Indian advocates, law firms, and corporate legal teams, combining AI-based case search, an AI legal assistant (Legal GPT), case management, and compliance automation across all Indian courts and tribunals.

Gratuity disputes are settled by controlling authorities, appellate authorities and, on writ, the High Courts, and the reasoning leans on earlier rulings about continuous service and what counts as wages. Claw opens more than 30 crore judgments to that question, returning a search in under five seconds, so you can read how a bench treated five years of continuous service or a contested wage component. The live matters, their cases, orders and hearings, can be followed by party or advocate name across 9,102 courts, benches and forums. Claw does not use the documents you upload to train its AI models.

Create a free Claw account to pull continuous-service rulings and track a gratuity claim by party or advocate name. To search the wider body of law, see case search across Indian courts.

08Sources and further reading

• India Code (Payment of Gratuity Act, 1972 and Code on Social Security, 2020): indiacode.nic.in
• Ministry of Labour and Employment: labour.gov.in
• Chief Labour Commissioner (Central): clc.gov.in
• Claw: clawlaw.in

This explainer is general information, not legal advice. Gratuity rules and tax limits change, so check the current text and take advice from counsel or a tax adviser before you act.

09Frequently asked questions