The gratuity formula
For an employer covered by the Gratuity law, gratuity is last drawn monthly salary x 15 x completed years of service / 26. The 15 stands for fifteen days of pay for each year, and 26 is the number of working days assumed in a month.
Who gets it
Gratuity is normally paid after five years of continuous service when you leave, retire or resign. It is also paid on death or disablement without that condition. Fixed-term employees are reported to qualify after one year under the new Code.
Is it taxed?
Gratuity from a covered employer is tax exempt up to the ceiling shown here. Anything above the limit is taxable as salary.