One of the most common questions employers ask is—how is gratuity calculated? The formula is simple but must be applied correctly to avoid compliance issues.
Gratuity Calculation Formula:
Gratuity = (Last drawn salary × 15 × years of service) ÷ 26

Key points to remember

  • Salary Components: Salary includes basic pay and dearness allowance for gratuity calculations.
  •  Service Requirement: Minimum of 5 years continuous service required, except in cases of death or disability.
  •  Tax Exemption: Gratuity is tax-free up to ₹20 lakhs under the Income Tax Act.

With IBSOL payroll automation, gratuity is calculated error-free, ensuring compliance and transparency.