Gratuity is a monetary benefit given by an employer to an employee for the services rendered to the organization. It is a part of the salary that is received by an employee for his/her service rendered to the organization. According to the Payment of Gratuity Act, 1972, gratuity is paid when an employee completes 5 years of continuous service.

The formula for calculating gratuity is: Gratuity = (Last drawn basic salary + DA) × 15/26 × Number of completed years Where: - Basic salary is your last drawn monthly basic salary - DA is Dearness Allowance - 15/26 represents 15 days out of 26 working days - Number of years is rounded down to the nearest year

An employee becomes eligible for gratuity under the following conditions: 1. The organization/factory/establishment is covered under the Payment of Gratuity Act 2. The employee has completed a minimum of 5 years of continuous service 3. The 5-year condition is waived in case of death or disablement 4. Both private and public sector employees are eligible

Gratuity received by government employees is fully exempt from tax. For non-government employees, gratuity is exempt from tax under Section 10(10) of the Income Tax Act, subject to certain limits: 1. For employees covered under the Payment of Gratuity Act: Minimum of the following is exempt: - Actual gratuity received - ₹20 lakhs - 15 days' salary × number of completed years of service