When does an employee become eligible for gratuity in India and how is it calculated?

Under the Payment of Gratuity Act, 1972, an employee becomes eligible for gratuity after completing five years of continuous service — except in cases of death or disablement, where the five-year condition is waived. The standard formula for covered employees is: (last drawn basic salary plus dearness allowance × 15 × number of completed years of service) ÷ 26.

In the formula, 15 represents 15 days’ wages per completed year and 26 the assumed working days in a month; only basic and DA count, not HRA or other allowances. A part-year over six months rounds up to a full year. Gratuity is tax-exempt up to ₹20 lakh for private-sector employees covered by the Act, and it must be paid within 30 days of becoming due, with interest payable on delay. Note that the new labour codes revise the wage definition used for such calculations, which can change the base figure.