Gratuity & Bonus
Gratuity formula and limit, and statutory bonus rules.
Key facts
- Gratuity applies to establishments with 10 or more employees. It is payable after 5 years of continuous service (1 year for fixed-term employees), or earlier on death or disablement.
- Gratuity = 15 × last drawn monthly wages (basic + DA) × completed years of service ÷ 26. Service of more than 6 months in the final year counts as a full year.
- The statutory gratuity limit is ₹20 lakh. Gratuity must be paid within 30 days of it becoming payable.
- Statutory bonus applies to employees earning up to ₹21,000 a month who worked at least 30 days in the year.
- Bonus is at least 8.33% and at most 20% of wages, calculated on wages of ₹7,000 or the minimum wage, whichever is higher.
- Bonus must be paid within 8 months of the end of the accounting year.
Common questions
What is the gratuity calculation formula?
15 × last drawn monthly basic + DA × completed years of service ÷ 26. Example: ₹40,000 × 15 × 10 years ÷ 26 = ₹2,30,769. More than 6 months in the last year counts as a full year. The maximum is ₹20 lakh.
After how many years is gratuity payable?
After 5 years of continuous service for regular employees, and after 1 year for fixed-term employees under the Code on Social Security. On death or disablement, the 5-year condition doesn't apply.
What is the statutory bonus rate?
Minimum 8.33% and maximum 20% of wages, for employees earning up to ₹21,000 a month. It is calculated on ₹7,000 or the minimum wage, whichever is higher, and paid within 8 months of the year end.
Is gratuity taxable?
For non-government employees, gratuity up to ₹20 lakh (lifetime) is exempt from income tax, subject to the formula. Government employees' gratuity is fully exempt.