If you’ve been working with the same company for a few years, you’ve probably heard colleagues talk about gratuity — that lump sum amount you get when you leave or retire. But here’s the thing: most people don’t really know how it’s calculated or how much they’re entitled to.
Let’s break it down simply. If your basic salary is ₹65,000, and you’ve worked 7 years with the same employer, you could be sitting on a gratuity amount of around ₹2.62 lakh — a reward for your loyalty and years of service. Sounds good, right? Let’s see how it works.
What Exactly Is Gratuity and Why Does It Matter?
Think of gratuity as your employer’s “thank you” for staying committed. It’s not a favor — it’s your right under India’s Payment of Gratuity Act, 1972.
Once you complete five consecutive years with the same organization, you become eligible to receive this one-time payment. It’s the company’s way of appreciating your dedication, while also providing financial support for your future.
And in special cases — like death or permanent disability — the five-year rule is waived. In those situations, the gratuity is paid to the employee’s family.
The 7-Year Example: Full Gratuity Calculation on ₹65,000
The formula to calculate gratuity is simple:
Gratuity = (Last drawn salary × 15 × Years of service) ÷ 26
Here,
- Last drawn salary includes Basic + Dearness Allowance (DA)
- 26 represents the average number of working days in a month
Let’s do the math:
If your basic salary is ₹65,000 and you’ve worked 7 years,
Gratuity = (65,000 × 15 × 7) ÷ 26 = ₹2,62,500
That’s your estimated payout — a decent financial cushion when you retire or change jobs.
And if your service period increases to 10 years, the gratuity can rise to about ₹3.75 lakh. It grows with every additional year you work.
When and How Will You Receive It?
You’ll typically receive your gratuity when you:
- Retire,
- Resign after completing 5 years, or
- Leave due to health or personal reasons covered by company policy.
Many companies now offer online gratuity calculators, so you can easily check your exact entitlement before leaving.
Is Gratuity Tax-Free?
Yes — but with conditions.
- Government employees get their gratuity fully tax-free.
- Private-sector employees enjoy tax exemption up to ₹20 lakh (as per current rules).
If the amount exceeds that, the balance is taxed as per your income slab.
This system ensures fairness and transparency while allowing smart retirement planning.
Why You Should Care About Gratuity
It’s easy to overlook gratuity until retirement feels close. But the truth is, it’s one of the most underrated financial assets you’ll ever earn. It rewards stability, loyalty, and long-term commitment — qualities that truly pay off.
If you’ve been with your company for a while, check your eligibility and calculate your amount today. You might be pleasantly surprised at how much you’ve already earned — quietly building up in your name.
Frequently Asked Questions
1. What is the minimum service period required to receive gratuity?
You must complete at least five continuous years with the same employer. Exceptions apply in cases of death or disability.
2. How is gratuity calculated for private employees?
The formula is (Basic + DA) × 15 × years of service ÷ 26. The result gives your eligible gratuity amount.
3. Is gratuity taxable in India?
For government employees, gratuity is fully tax-free. For private employees, it’s exempt up to ₹20 lakh — anything beyond that is taxable.