In 2026, the rules governing gratuity in India remain crucial for employees across private and public sectors. Gratuity is a statutory retirement benefit provided to employees as a token of appreciation for long-term service. The payment is governed by the Payment of Gratuity Act, 1972, which has been periodically updated to ensure fairness, eligibility clarity, and tax benefits. Employees completing the minimum service tenure are entitled to receive gratuity upon retirement, resignation, or in case of death or disability.
Eligibility Criteria for Receiving Gratuity
Employees are eligible for gratuity if they have completed at least 5 years of continuous service with the same employer. Certain exceptions apply, such as in case of death or permanent disability, where gratuity is payable regardless of the tenure. Gratuity rules apply to organizations with 10 or more employees, and both private and government sector staff are covered under these provisions.
Calculation of Gratuity in 2026
The standard formula for calculating gratuity under the Payment of Gratuity Act is:
Gratuity = (Last Drawn Salary × 15/26) × Number of Years of Service
Here, last drawn salary includes basic pay plus dearness allowance, 15 is the number of days’ wages per year, and 26 represents the standard working days in a month. For employees in managerial or supervisory roles, the same formula applies, but capped as per statutory limits.
| Component | Description |
|---|---|
| Last Drawn Salary | Basic pay + Dearness Allowance |
| Days Multiplier | 15/26 (15 days wages per completed year) |
| Service Tenure | Number of completed years with employer |
| Maximum Gratuity Limit | ₹20,00,000 (as per 2026 statutory cap) |
This table summarizes the key components of gratuity calculation for easy reference.
Payment Scenarios and Timing
Gratuity is generally payable at the time of retirement, resignation, or termination. In case of death or permanent disability, the nominee receives the gratuity. Employers must process gratuity payment within 30 days of becoming payable. Delays beyond this period may attract interest or penalties as per applicable laws.
Tax Benefits on Gratuity in 2026
Gratuity received by employees covered under the Payment of Gratuity Act is tax-exempt up to the statutory ceiling, which is currently ₹20 lakh. Any amount exceeding the statutory limit is taxable under the income tax slab of the individual. Employees in private sector organizations not covered under the Act may also claim tax exemptions up to the prescribed limits under the Income Tax Act.
Conclusion
The Gratuity Rules 2026 provide employees with a secure retirement benefit, ensuring financial support after long-term service. Clear eligibility criteria, structured calculation formulas, and defined tax benefits make gratuity a vital part of retirement planning. Employees should maintain accurate records of service tenure and last drawn salary to ensure correct payment and timely receipt of gratuity benefits.
Disclaimer: This article is for general informational purposes only. Implementation of gratuity rules, calculation limits, and tax exemptions may vary based on official government notifications and employer-specific policies. Readers should consult their HR departments or official regulatory guidelines for precise and updated information.